Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions — FOREIGN AND COMMONWEALTH AFFAIRS

Falkland Islands

The following questions stood upon the Order Paper:

Mr. Canavan: To ask the Secretary of State for Foreign and Commonwealth Affairs whether he will make a statement about the situation in the Falkland Islands.

Mr. Cryer: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on negotiations over the Falkland Islands.

Mr. Neubert: To ask the Secretary of State for Foreign and Commonwealth Affairs when next he expects to meet Secretary Haig to discuss the Falkland Islands.

Mr. Aitken: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the Falkland Islands situation.

Mr. Trippier: To ask the Secretary of State for Foreign and Commonwealth Affairs what has been the progress in negotiations with the Argentines over the Falkland Islands.

Mr. Speaker: Mr. Canavan.

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Francis Pym): May I ask the hon. Gentleman to await my statement at 3.30 pm? That also applies to questions 8, 9, 10 and 19.

Mr. Speaker: Will those hon. Members whose questions are to be answered await the statement of the Foreign Secretary?

Mr. Cryer: Certainly, to help the House, Mr. Speaker.

Middle East

Mr. Campbell-Savours: asked the Secretary of State for Foreign and Commonwealth Affairs whether he will list those persons and organisations with whom Lord Carrington held discussions in Jerusalem during his recent visit to the Middle East.

The Minister of State, Foreign and Commonwealth Office (Mr. Douglas Hurd): During his visit to Israel from 30 March to 1 April my right hon. and noble Friend Lord Carrington met the President, Prime Minister, Defence Minister, the Speaker and other Members of the Israeli Knesset. Lord Carrington also visited the Weizmann institute of science.

Mr. Campbell-Savours: Is it not significant that the then Foreign Secretary was prevented by the Israeli authorities from meeting Mayor Shakaa of Nablus and Mayor Khalaf of Ramallah? If the noble Lord had met them, does the right hon. Gentleman recognise that he would have found two very civilised representatives of West Bank thinking, not Palestinian terrorism as they are being presented in the Western press? Will he protest to the Israeli Government about the treatment of those two mayors and about the lack of civil rights in the West Bank under Israeli jurisdiction?

Mr. Hurd: The hon. Gentleman is not quite right. The idea was that the Deputy Under-Secretary of State who was with Lord Carrington, Sir John Leahy, should meet a number of West Bank personalities. He could not meet all those whom he wished to meet, but he had useful conversations with two of them.

Mr. Walters: Quite rightly, the attention of the House is concentrated on the Falkland Islands. Does my right hon. Friend agree that the principle of self-determination, which we all uphold, is just as valid when applied to the Palestinians and that there will be a grave danger of war, and certainly no chance of lasting peace, unless that principle is recognised?

Mr. Hurd: I agree with my hon. Friend about the dangers in the Middle East and about self-determination.

Mr. Hooley: Will the Minister convey to Mr. Begin that a Bantu-style arrangement, under which 1¼ million Palestinian Arabs are third-class citizens, is no more acceptable in the Middle East than it is in South Africa?

Mr. Hurd: My noble Friend Lord Carrington went over that ground thoroughly with Mr. Begin. I do not think that there is any doubt about our position.

Mr. Lawrence: Is not the self-determination that we are talking about the self-determination of the Palestinian Arabs, not the self-determination of the Palestinians taking their orders from the PLO in Beirut?

Mr. Hurd: We are talking about the right of the people in the occupied territories to determine their own future—a right which so far has not been granted.

Dictatorships (Government Policy)

Mr. Soley: asked the Secretary of State for Foreign and Commonwealth Affairs whether he will review the policy of Her Majesty's Government towards those Governments which are dictatorships, following the invasion of the Falkland Islands by Argentina.

Mr. Pym: The policy of Her Majesty's Government towards all foreign Governments is kept under constant review.

Mr. Soley: Does the Foreign Secretary accept that it is high time that Britain and the West in general developed foreign policies that demonstrate beyond reasonable doubt that we support democracies and oppose authoritarian dictatorships?

Mr. Pym: At the present time we are showing good evidence of doing just that.

Mr. Wilkinson: In reviewing the Government's policies towards countries which are under dictatorial rule, will the Government address themselves to the problem of


the Eritrean people who are fighting against the armed might of the Ethiopian regime, which is backed by the Soviet Union? Will the Government also give assistance to the friendly Government of Somalia next door?

Mr. Pym: I shall consider what my hon. Friend has said about those two countries.

Mr. Alexander W. Lyon: Does the Foreign Secretary accept that his conversion against the dictatorship in the Argentine was a bit late? Does he further accept that when the present troubles are over it might be better if the Foreign Office were to review our relationships—particularly in regard to selling arms—with dictatorships around the world, especially those in Latin America, as the issue has now obviously changed?

Mr. Pym: There are degrees in everything, and it is difficult sometimes to draw a precise dividing line, but I think the House knows to what the hon. Gentleman is referring. I certainly do. Obviously, there may be a review of our relationships with some countries when the present particularly unfortunate incident is over. I shall keep in mind what the hon. Gentleman said.

Mr. Robert Atkins: When my right hon. Friend carries out that review, will he make it clear to all who read any report that emanates from it that Conservative and Labour Governments have sold arms to the Argentine? Will he also make it clear that members of the previous Labour Government were responsible for selling two type 42 frigates and a number of Canberras to the Argentine Republic and that many of them—particularly the right hon. Members for Brisol, South-East (Mr. Benn) and for Lanark (Dame Judith Hart)—were involved in the decision when it was taken?

Mr. Pym: It is fair to say that Conservative and Labour Governments have always kept their policies on the sale of arms under constant review. All applications for the sale of arms are considered on their merits. That policy applied to the previous Labour Government, as it does to the present Government. Sometimes things work out helpfully and at other times they work out otherwise. The subject is constantly under review. Undoubtedly, many countries have supplied arms to the Argentine in the last 10 or 20 years.

Mr. Clinton Davis: Is it not a fact that the Chilean junta is as bloodstained as the Argentinian junta? Why do the Government continue to enjoy friendly relations with the Chilean Government, especially as that Government have not offered a word of apology to the British Government for their assaults upon the freedom of British citizens in Chile?

Mr. Pym: Our policy is to have normal relations with Chile and other countries, consistent with British interests. In so doing we have left the Chilean Government in no doubt that their record on human rights has given rise to a great deal of concern here.

Latin America (Diplomatic Representation)

Mr. Foulkes: asked the Secretary of State for Foreign and Commonwealth Affairs what representations he has received regarding the level of United Kingdom diplomatic representation in Latin America.

The Minister of State, Foreign and Commonwealth Office (Mr. Cranley Onslow): None, Sir.

Mr. Foulkes: Should we not learn from recent events that it is important to keep in touch with the views of the people and Governments of the countries in this vast continent? Will the Government reconsider their decision not to have ambassadorial representation in Nicaragua?

Mr. Onslow: We have no plans to change the present arrangement whereby Her Majesty's ambassador in San Jose is accredited to Managua. The ambassador and his staff have made several visits to Nicaragua this year.

Mr. Bill Walker: Does my hon. Friend agree that British representation in Latin American countries in the past has been largely through our trading links and that we have a good record of trading, other than arms trading?

Mr. Onslow: I am grateful to my hon. Friend for what he said. Perhaps I may take this opportunity to pay a tribute—which I hope the whole House will endorse—to the staff of our missions throughout Latin America for the way in which they are carrying out their task in the current difficult circumstances.

Mr. Clinton Davis: I accept and endorse what the Minister has just said about our diplomatic staff. Does he agree that there have been dramatically changed circumstances in Latin America, for obvious reasons, since the Government declared their policy with regard to ambassadorial status in Nicaragua in particular? Does he further agree that it is important, in view of those changing circumstances, to have somebody on the spot all the time?

Mr. Onslow: I know that some members of the Select Committee on Foreign Affairs have expressed concern about the subject. If the Committee has specific recommendations to put to me when it completes its report on the visit to the area, I shall be willing to consider them.

Sir Anthony Kershaw: I understand my hon. Friend's reservations about this particular embassy, but will he bear in mind that the annual cost of the embassy in San Jose is rather less than one torpedo?

Mr. Onslow: I am sure that all relevant factors will be borne in mind.

Mr. Spearing: Irrespective of the formal position concerning accreditation, does the Minister agree that it might be possible to have a permanent British presence in some of the smaller capitals at relatively low cost and so get the advantage of a listening post, which occasional visits cannot give?

Mr. Onslow: If it should seem to be of advantage to set up the kind of mini-mission that the hon. Gentleman suggests, we shall give favourable consideration to the idea.

Nuclear Disarmament

Mr. Norman Atkinson: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make it his policy to support any meeting between President Reagan and President Brezhnev with a view to assisting nuclear disarmament.

Mr. Pym: Yes, Sir. We support any direct contact between the Heads of the Governments of the two major nuclear Powers which seems likely to promote agreement on balanced and verifiable reductions in nuclear arms levels.

Mr. Atkinson: Does the Foreign Secretary agree that the current situation demonstrates just how precarious world peace is? Therefore, does he recognise that now is the time for him to exert leadership in Europe by mobilising opinion among our friends on the Continent behind the early commencement of the strategic arms reduction talks, a possible October meeting between President Brezhnev and President Reagan, and to go all out to ensure the success of those talks in the way that he is now suggesting?

Mr. Pym: Yes, we are strongly in support of those talks. They will have our full support, but they are primarily for the two super Powers. The instability in the world at the moment and the issue that is occupying so much time in the House demonstrate the need for deterrence, which means an adequate capability to deter anyone from going to war in the first place. That is a very important element. That is why in arms control it is important that reductions, which everybody wants, should be balanced and verifiable.

Mr. Chapman: Does my right hon. Friend know whether it is the intention of Presidents Reagan and Brezhnev to attend the United Nations second special session on disarmament in June? Does he agree that that is the appropriate forum in which the two Presidents can put forward constructive proposals for balanced multilateral disarmament? Does my right hon. Friend also welcome the fact that our Prime Minister will be attending those talks?

Mr. Pym: I understand that the President of the United States has indicated his readiness to go. We do not yet know about President Brezhnev. My right hon. Friend the Prime Minister has indicated her intention to be present. I hope that that answers my hon. Friend's question.

Mr. George Robertson: Is the Secretary of State aware of the strength of support on the Labour Benches for the sort of summit meeting that is being talked about here? May we hope that Her Majesty's Government, during the important preparatory sessions for such a summit meeting, will use their influence to make sure that major initiatives are taken to reduce the present level of armaments in the world?

Mr. Pym: Yes, we shall certainly take all those important points fully into account. At the same time, we must appreciate that the build-up of arms on the other side of the Iron Curtain still continues, and we have to be sure all the time that we have the capability and the equipment with which to negotiate. If we were not adequately protected, and if our deterrence were not adequate, there would be little incentive for those on the other side of the Iron Curtain to negotiate with us. We have very much in mind the points that the hon. Gentleman has made.

Afghanistan

Mr. Temple-Morris: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the relations between Her Majesty's Government and the Government of Afghanistan.

Mr. Hurd: Her Majesty's Government do not regard the Karmal regime as a Government and therefore do not deal with it as a Government.

Mr. Temple-Morris: Does my right hon. Friend agree that it is difficult to have normal relations with

Afghanistan when the authorities insist on detaining, without any proper charge, Mr. Pinder-Wilson, who is an archaeological academic with a very genuine interest in Afghanistan? Will my right hon. Friend tell us what Her Majesty's Government are doing to obtain his release and will he inform us of his condition?

Mr. Hurd: It is true that the security authorities have detained Mr. Pinder-Wilson since 28 March, and they have given no details of charges against him, despite repeated requests by the British consul. The consul has seen him once, but only one consular visit has been permitted. We are continuing to press for proper access by the consul and for details of any charges against Mr. Pinder-Wilson.

Mr. Ron Brown: If it makes sense to have negotiations about the Falklands, does it not make sense also to have negotiations about Afghanistan? President Karmal has suggested that he will send the troops out of his country provided that he can get certain guarantees. Should not that offer be taken up? If we are talking about world peace, does that not matter, or does militarism cloud every mind in the House? I do not think that it does, but surely——

Mr. Speaker: Order. The hon. Gentleman has asked his question.

Mr. Hurd: The hon. Gentleman follows these matters with some care. Therefore, he must know that last year we, together with our European partners, put forward a peace plan for Afghanistan, but it must depend upon the willingness of the Soviet Union to withdraw its Army from that country.

Mr. Nicholas Winterton: As Mr. Pinder-Wilson's niece lives in my constituency I have a deep interest in this matter and have communicated with my right hon. Friend about it. Is it possible to bring pressure to bear upon the Afghan authorities through the Soviet Union, which has considerable influence in that country?

Mr. Hurd: We are trying every way that we can, and I shall certainly consider what my hon. Friend suggests.

Ireland (Continental Shelf)

Dr. Edmund Marshall: asked the Secretary of State for Foreign and Commonwealth Affairs what was the outcome of the meeting held during April with officials of the Government of the Republic of Ireland concerning the delimitation of the continental shelf between the United Kingdom and the Republic.

The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Malcolm Rifkind): The meeting between officials which took place in London on 16 April made further encouraging progress towards agreeing the composition and terms of reference of the arbitration tribunal. Another meeting has been scheduled for June.

Dr. Marshall: As there have been at least nine such meetings since the beginning of 1980, cannot Ministers inject some urgency to produce an early and clear outcome to the talks so that, for instance, fishing vessels and submarines may know in whose territorial waters they are sailing?

Mr. Rifkind: The terms of reference and composition of the tribunal are complex matters, but we hope that the arbitration process will be signed during this year.

Sir Peter Emery: In considering the problem, will my hon. Friend draw to my right hon. Friend's attention the recorded broadcast of the Prime Minister of Eire on BBC television last night, which was massively unhelpful to Britain's position in solving the problem of aggression in the Falkland Islands and would be considered by some to be a stab in the back?

Mr. Rifkind: Those matters do not arise out of the question, but I am sure that my hon. Friend's views are shared by many hon. Members.

Mr. George Robertson: In discussing the continental shelf between Ireland and Great Britain, does the Minister feel that relations have been injured by the recent incident involving a submarine and a fishing boat? Why did the submarine not know that it was snagged in the nets of a fishing boat until the fishing boat had gone 11 miles backwards? Why did it take so long for the British Government to admit responsibility for the incident?

Mr. Rifkind: The incident to which the hon. Gentleman refers is a matter of concern. However, it is appropriate to address such questions to my right hon. Friend the Secretary of State for Defence.

Belize

Mr. Robert Atkins: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on Her Majesty's Government's current relations with Belize.

Mr. Onslow: Her Majesty's Government enjoy excellent relations with Belize, which became a member of the Commonwealth on attaining independence in September 1981.

Mr. Atkins: Does my hon. Friend agree that now more than ever the threat to Belize from Guatemala should be taken fully into consideration? If so, does he share my view that the policy of keeping British forces in Belize, which cost a mere £4·4 million and are wanted by the Belize authorities to protect their interests, should be pursued with vigour? Will he assure me that they will stay there for as long as is necessary?

Mr. Onslow: The British garrison remains in Belize. No decision has been taken on a date for its withdrawal. We hope that in due course the new Government in Guatemala will have discussions with Belize over the dispute with a view to achieving a final and peaceful solution. However, the new Government have so far shown no disposition to do so, and there are no clear signs as to how the new junta will approach the territorial dispute with Belize.

Mr. Healey: Will the Minister give the House an assurance, which I am sure both sides wish to hear, that there will be no question—I put it precisely—of withdrawing the British forces presently protecting Belize until it is clear to all that there is no current military threat from Guatemala?

Mr. Onslow: The present heightened tension in that hemisphere as a result of the Falklands crisis will be carefully considered by the Government in any decision about the presence of the garrison.

Mr. Healey: That reply is totally unsatisfactory. I ask, for the second time, a specific question, which it should

not be difficult for the Government to answer. Indeed, a refusal to answer or an attempt to evade the question will have the most damaging consequences for stability in that area. Will the Minister give an assurance that the Government will not withdraw the forces presently committed to the defence of Belize until everyone is satisfied that there is no further threat from the Government of Guatemala?

Mr. Onslow: I repeat that no date has been set for withdrawal. The factors mentioned by the right hon. Gentleman are obviously relevant to any decision that we may take.

Sir Frederic Bennett: Is it not highly relevant in the context of events in the Falkland Islands that, immediately after the invasion of the Falkland Islands by Argentina, Guatemala stepped up its articulate demands for gaining Belize? I ask my hon. Friend not whether he is prepared to give a date but whether, if the British troops remain in Belize, there will be no lack of universal acceptance by the House of full efforts and determination to ensure that it is not let down at the last moment.

Mr. Onslow: We have no intention of letting Belize down. We are watching closely and listening carefully to what is being said by the new regime in Guatemala.

Mr. Healey: I regret to have to come back to the issue, but I have the support of many hon. Members on both sides of the House in doing so. As the Minister will know, many of us believe that the crisis in the Falkland Islands arose because the Government gave a false signal to the Argentine Government. Unless the Minister can give a specific answer to the specific question that I put to him, he is in danger of giving another false signal. I appeal to him again to do so.

Mr. Onslow: rose——

Sir Bernard Braine: And close that brief.

Mr. Onslow: I have no intention of giving any false signals, even to those who wish to see them.

Mr. Cormack: Does my hon. Friend accept that the only answer that the House needs is a simple "Yes"?

Mr. Onslow: I am well aware of the mood of the House. I do not know why the House does not understand me.

Palestine Liberation Organisation

Mr. Edwin Wainwright: asked the Secretary of State for Foreign and Commonwealth Affairs whether he has any new information on the Palestine Liberation Organisation's attitude towards Israeli sovereignty.

Mr. Hurd: There have been a number of statements from PLO leaders on the subject of Israel's right to exist as an independent sovereign State, but, taken together, these statements have been neither clear nor consistent. In the contacts that we maintain with the PLO at official level, we urge it to state explicitly that in the context of a settlement it would be prepared to accept Israel's rights.

Mr. Wainwright: Is the Minister aware that on 12 January this year the political adviser to Yasser Arafat said that there was no hope of any deal being made with the Israelis and that the Arabs intended to consider the matter from the vantage point of there being no such


arrangements for making peace with Israel? If that is true, what are the hopes for arriving at some solution to this delicate problem?

Mr. Hurd: We can all swap quotations. I have a series of quotations from Mr. Arafat which tend to point the other way. It simply adds up to the conclusion that I drew, which is that, sadly, the statements of the PLO on this subject have been neither clear nor consistent.

Mr. Nelson: Is it not significant that the PLO said that it will consider sympathetically any revival of the Fahd plan, which offers the first prospect of Arab agreement on an exchange of territorial concessions for the security and recognition of the State of Israel? Is there not a better prospect of a way forward being found through a revival of the Fahd plan than through a continuation of the Camp David talks?

Mr. Hurd: My hon. Friend is right. The PLO has given indications of that kind. We would like the PLO to state explicitly that if Israel recognised Palestinian self-determination, it would be prepared to accept Israel's right to exist.

Mr. Moyle: Does the right hon. Gentleman agree that the Palestine Liberation Organisation's diplomatic position is severely handicapped by its unwillingness to make the statement that he has just urged it to make? Is he aware that if he continually urges the PLO to make that statement, he will have the Opposition's support?

Mr. Hurd: I am grateful to the right hon. Gentleman for his comments.

Anglo-Israeli Relations

Mr. Latham: asked the Secretary of State for Foreign and Commonwealth Affairs whether, following his predecessor's recent visit to Israel, he will make a statement on the steps which he proposes to take to improve relations between the United Kingdom and Israel still further.

Mr. Hurd: One of the results of my right hon. and noble Friend Lord Carrington's visit was to strengthen relations between the United Kingdom and Israel. The forthcoming official visits of the Israeli Deputy Prime Minister and Minister of Agriculture and the Minister of Industry and Trade, will provide further opportunities for discussion. We have also proposed, and the Israeli Government have accepted, the idea of holding talks at senior official level.

Mr. Latham: Lord Carrington's visit was obviously overshadowed by the subsequent crisis in the Falkland Islands, but is my right hon. Friend aware that the visit was well received in Israel and did a great deal to improve relations? When the further problems with which we are all concerned have, I hope, receded, will my right hon. Friend give as much attention as he can to improving relations further?

Mr. Hurd: My hon. Friend is right. If we are to play an effective part in helping things forward in the Middle East it is important that we should have a continuous and friendly dialogue with Israel.

Mr. Ron Brown: Does the Minister consider it appropriate at this stage to invite representatives of the PLO and Israel to an informal meeting in London to

discuss the basic issues in the Middle East? Does he further agree that that is the only way in which we shall resolve the fighting in that part of the world? If there is to be a solution, clearly the Government have the responsibility, just as they do in the Falklands, to put forward certain initiatives. Will they do that?

Mr. Hurd: The hon. Gentleman suggested that we should invite Israeli and PLO representatives to a meeting in London. We could invite them, but neither would come.

Sinai (Israeli Withdrawal)

Mr. Lennox-Boyd: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement concerning the Israeli withdrawal from Sinai.

Mr. Pym: We warmly welcome the Egypt-Israel peace and the successful completion of the Israeli withdrawal from Sinai. It is a most important step forward on the path to a comprehensive peace and we particularly admire the determination that the Israelis have shown in carrying it out.

Mr. Lennox-Boyd: In recognising that this is a most important step forward, does my right hon Friend agree that the time is now right for the Government to persuade the Government of the United States to have a much clearer policy on the West Bank than in the past, consistent with the right to full autonomy for the inhabitants on the West Bank?

Mr. Pym: Yes, I think that that would be helpful. I have not yet had any discussions on this with Mr. Haig or anyone in the United States Administration. I have not yet had time for a conversation with them on that subject, but I shall bear in mind my hon. Friend's comments.

Mr. Roy Hughes: Does the Foreign Secretary appreciate that at the same time as Israel was withdrawing from the Sinai it was building new settlements on the West Bank? I saw for myself that the Palestinians there were very badly treated. Does the right hon. Gentleman agree that the only real, lasting hope of peace in the area lies in a mutual recognition by the two sides of the right of Israel to exist and for the Palestinians to be allowed to decide their own destiny?

Mr. Pym: I have a great deal of sympathy with what the hon. Gentleman says. We obviously deplore recent incidents of violence and bloodshed, because that can only make more difficult the creation of a climate of trust and confidence, which is an essential preliminary for a negotiated settlement. However, I have noted what the hon. Gentleman said.

Mr. Cyril D. Townsend: Has my right hon. Friend's attention been drawn to a report in Le Monde dated 28 April, which reported Mr. Begin as suggesting that the West Bank could not be annexed by Israel as it is already part of Israeli territory? Will my right hon. Friend make it clear to the House that that is not the view of Her Majesty's Government?

Mr. Pym: Will my hon. Friend be kind enough to repeat the question?

Mr. Townsend: Has my right hon. Friend's attention been drawn to a report in Le Monde dated 28 April, which reported Mr. Begin as saying that it was impossible for Israel to annex the West Bank as the West Bank already


belonged to Israel? Will my right hon. Friend make it perfectly clear that that does not represent the view of Her Majesty's Government?

Mr. Pym: I have not seen that report. It has not been brought to my attention this morning. However, I do know that the whole issue of the West Bank is obviously the central part of the dispute. I hope shortly to be able to devote a good deal more of my time to dealing with that issue. The Government's position is to do whatever we can with our European partners to help in this matter.

Mr. Home Robertson: Does the Foreign Secretary agree that any improvement in our relations with Israel will be difficult while Israeli forces remain on the West Bank, in Syria and in the Lebanon?

Mr. Pym: I see nothing but difficulties in the whole of that area. What the hon. Gentleman says is true, but there are other features of the problem that are equally difficult to deal with. I think people all round the world are trying to find a way forward in this dispute. I agree with the hon. Gentleman about the difficulty.

Namibia

Mr. Hooley: asked the Secretary of State for Foreign and Commonwealth Affairs when he expects an agreement on the independence of Namibia to be reached between the contact group and the other parties.

Mr. Onslow: The Western Five hope to resolve the outstanding issues in time for implementation of the United Nations plan to begin during 1982. This would mean that a ceasefire would come into effect this year, together with the deployment of the United Nations transition assistance group and the start of the process leading to elections. Actual independence for Namibia would follow some time in 1983.

Mr. Hooley: In the light of the Government's current sensitivity on the issues of aggression and self-determination, will they now show a greater sense of urgency on South African aggression against Angola, which continues day by day, and on self-determination for the people of Namibia, who have waited 16 years for that?

Mr. Onslow: The whole purpose of the Government's exercise is to put an end to that state of affairs. The hon. Gentleman might like to know that we have received a memorandum indicating SWAPO's views on the proposals in phase 1. We look to the current meeting of the Foreign Ministers of the front-line States in Dar-es-Salaam for an authoritative response to our proposals. We shall then make proposals on how to take negotiations forward, once we have had time to study the authoritative responses of the parties, and do not intend to waste time in that process.

Mr. Eldon Griffiths: Has my hon. Friend had an opportunity to meet Mr. Dirk Mudge during his current visit to London? Is he aware that those of us who have recently been to Namibia know that the people who suffer most from SWAPO are the indigenous minorities, such as the bushmen, and that those who benefit most from the South African presence, curiously enough, are precisely those ethnic minorities whose future could be at risk unless the matter is handled with great delicacy?

Mr. Onslow: I hope to meet Mr. Mudge tomorrow. I look forward very much to discussing with my hon. Friend his findings during his recent visit to Namibia.

Mr. Alexander W. Lyon: When the Minister listens to claims such as those made by the hon. Member for Bury St. Edmunds (Mr. Griffiths), will he remember the sort of claims made by similar people about Rhodesia, and will he bear in mind that Dirk Mudge is no more than the Bishop Muzorewa of Namibia?

Mr. Onslow: It is not likely to help my discussions with anyone if I make prejudgments of that kind.

Mr. Wilkinson: Has my hon. Friend seen reports in the press that about 500 Cuban personnel have been withdrawn from Angola? Are they military or civilian personnel, or persons who in any way supported the SWAPO incursions into South-West Africa?

Mr. Onslow: I have seen such reports, but I suggest that my hon. Friend should address his question to the Cuban Government rather than to me.

Arms Sales

Mr. Skinner: asked the Secretary of State for Foreign and Commonwealth Affairs whether he will raise at the next meeting of the European Economic Community Foreign Ministers the question of stopping arms sales to Fascist-style regimes; and if he will make a statement.

Mr. Hurd: Individual countries in the European Community have their own policies on the export of arms. However, the hon. Member will be aware that Community members have now banned the export of all arms to Argentina.

Mr. Skinner: That does not answer the question on the Order Paper. Does the Minister agree that it is a scandal that the Common Market countries are making a killing out of what is taking place in the area of the Falkland Islands? Is it not a fact that it was almost certainly a French missile that sank HMS "Sheffield" yesterday? Is it not true that British missiles are being fired on British troops? Is it not time that the Government gave an unequivocal commitment that they will stop selling arms to Fascist-style regimes in the world and called upon our so-called Common Market partners to do the same?

Mr. Hurd: I simply repeat, in answer to the hon. Gentleman's question and his supplementary question, that Community members have now banned the export of all arms to Argentina.

Mr. Marlow: Will my right hon. Friend deal not only with the sale of arms from Europe to Fascist-style regimes but with European policy on the sale of arms between Facist-style regimes—notably the sale of arms by Israel to the Fascist regime in Argentina? Can he assure the House that this has now stopped?

Mr. Hurd: We raised this with the Israeli Government and received assurances from them that they would enter into no new contracts for the supply of arms to Argentina, nor would they speed up delivery under existing contracts.

Mr. Donald Stewart: As we now have the sad experience of coming under fire from weapons and vessels that we have supplied, will the Government give a guarantee to cease the supply of arms to all South American countries, and in particular will they reconsider the sale of Harrier jets to Venezuela?

Mr. Hurd: As my right hon. Friend said a few minutes ago, we look carefully at all applications for the supply of


arms, and in particular refuse requests where we think that the equipment in question could be used to suppress human rights in the country concerned.

Sir Bernard Braine: While I agree that there should be a tightening of controls, if not a ban, on the export of arms to authoritarian regimes, particularly those that threaten their neighbours, will my right hon. Friend give the House the assurance that it requires and say that if a small democracy such as Belize is threatened by such a country, we shall stand by it?

Mr. Hurd: I think that my hon. Friend will have heard the comprehensive answers that have already been given.

United Nations (Disarmament Session)

Mr. Chapman: asked the Secretary of State for Foreign and Commonwealth Affairs if he will report further progess on the preparations for the United Nations special session on disarmament in June.

Mr. Hurd: The final meeting of the preparatory committee for the special session is taking place in New York. The spring session of the Committee on Disarmament in Geneva ended on 21 April and a report of its work will be submitted to the special session. Mr. Frank Judd, the director of Voluntary Service Overseas, and a member of the national executive of the United Nations Association, has agreed to accompany the United Kingdom delegation as an independent adviser in liaison with British non-governmental organisations.

Mr. Chapman: I am grateful to my right hon. Friend for that information. As he knows that it is the fervent wish of millions of people that the special session should be successful and produce practical measures to bring about multlateral disarmament, will he give an assurance that the Prime Minister will lead the discussions, with a view to obtaining international agreement on banning the manufacture, as well as the stockpiling and use, of all chemical weapons?

Mr. Hurd: As my hon. Friend knows, the Prime Minister has said that she intends to lead our delegation at the beginning of the United Nations special session. We have paid great attention to the possibility of making progress on the chemical weapons question and we have tabled proposals—which we hope will be helpful—for dealing with the main obstacle of verification. We hope that all those concerned will look favourably on our proposals, so that we can make progress.

Mr. James Lamond: What have the Government done as a result of the agreement reached at the last United Nations special session on disarmament in 1978?

Mr. Hurd: Both the last Government and this Government have tried to take every opportunity to help the negotiations between Governments. They are the only possible basis for progress on arms control and disarmament. The first and second special sessions can encourage, stimulate and spur on, but ultimately agreement is reached only by negotiation between Governments.

Mr. Henderson: Does my right hon. Friend agree that progress towards disarmament will be greatly aided if peace-loving nations are freed from the fear of aggression

by countries that do not believe in democracy and if the United Nations has the ability to insist on the implementation of resolutions, such as resolution 502?

Mr. Hurd: My hon. Friend is absolutely right and I entirely agree with him.

Mr. Norman Atkinson: Why do the Government practice dual standards in such matters? Why do they oppose, as a matter of principle, the proliferation of nuclear, biological or chemical weapons, but believe in the proliferation of conventional weapons, because they believe in arms sales?

Mr. Hurd: We have answered many questions on conventional arms sales. When friends in the Third world or elsewhere come to us saying that they have established a need for a new piece of equipment, we encourage them to buy British instead of Russian or French. That seems perfectly reasonable. However, we must deal with the tensions and disputes that create the demand for arms.

Argentina

Mr. Dykes: asked the Secretary of State for Foreign and Commonwealth Affairs if he is satisfied with the workings of the European Economic Community ban on Argentine imports to all member States.

Mr. Onslow: Yes, Sir. The solidarity that our Community partners showed so quickly and effectively has been an essential element in the international pressure on Argentina to withdraw from the Falkland Islands. The ban, which affects about a quarter of Argentina's exports, will have a serious impact on Argentina's economy in the absence of an early political settlement.

Mr. Dykes: Is my hon. Friend entirely satisfied that the ban is working fully and effectively in all respects? With 12 days to go before the renewal date, does he anticipate that, unfortunately, it will have to be renewed?

Mr. Onslow: We have no reason to suppose that the ban is not working effectively, although obviously its full effects will be felt only with time. If the situation requires, my right hon. Friend the Foreign Secretary w ill ask his colleagues in the Community to renew the ban when he sees them on 8 and 9 May.

Mr. Skinner: Will the Minister confirm that, notwithstanding the initial statement from the Common Market countries, it will be necessary—quite apart from the question of a renewal date—for many of the Common Market countries to pass the appropriate legislation to enforce the ban, as reported in the communiqué? Is it not a fact that some of the Common Market countries are very hesitant about enforcing the ban by such legislation?

Mr. Onslow: If we think it necessary to ask the Community countries to take action to implement the ban fully, I hope that they will not hesitate to pass the necessary legislation.

Mr. Marlow: Since the battles that we are fighting in the South Atlantic are being fought on behalf of all our Community partners, and since they accept that, wall my hon. Friend ask them whether they are prepared to make a substantial contribution from the Community budget towards fighting everybody's battles? I am sure that they would be only too happy to comply.

Mr. Onslow: I am sure that my right hon. Friend the Foreign Secretary will note my hon. Friend's views.

Poland

Mr. Greenway: asked the Secretary of State for Foreign and Commonwealth Affairs what recent steps he has taken to persuade the Polish Government to terminate martial law in Poland.

Mr. Rifkind: I refer my hon. Friend to the statement by my right hon. Friend the Member for Spelthorne (Mr. Atkins) on 5 February. These measures were designed to persuade the Polish authorities to lift martial law, release those detained and resume a genuine dialogue with the Church and Solidarity. The demonstrations in Poland over the weekend are further evidence that the continuation of martial law is unacceptable to the Polish people. We are continuing to make our views clear to the Polish authorities whenever appropriate opportunities arise.

Mr. Greenway: May I thank my right hon. Friend for his reply and underline his recognition of the fact that the Polish people showed their distress at the appalling situation imposed on them by the Jaruzelski regime over the weekend? Will the Government continue to do everything possible to make the Polish regime lift martial law and to set the Polish people free once more?

Mr. Rifkind: My hon. Friend is correct. Last week the Polish Government announced the release of some detainees and some relaxation in the conditions of martial law. However, my hon. Friend and the House will have noticed that only yesterday aspects of martial law were reintroduced, which must be a matter of great concern to the people of Poland and to the West. We shall take every opportunity to impress upon the Polish Government our concern that a genuine dialogue should be reintroduced and that martial law should be removed.

Mr. George Robertson: Will the Minister accept that few of those who saw the television pictures showing the military action taken against the civilian demonstrators in Poland over the weekend were anything other than horrified? Despite the Government's preoccupation with other matters, will they ensure that the views of the British people are fairly reflected and that the Polish Government understand our outrage?

Mr. Rifkind: The hon. Gentleman is correct. The large number of people who turned out to demonstrate on the streets of Warsaw on May Day showed the strong support that Solidarity retains. Only last week I met the Polish ambassador to the United Kingdom and impressed on him the fact that the British Government saw the removal of martial law, the beginning of a dialogue with the Polish people and the release of all detainees as necessary preconditions to the resumption of full and normal relations between this country and Poland.

Dr. Mawhinney: Is my hon. Friend aware that many, if not all, of those of Polish descent who live in this country are unable to telephone their relatives in Poland? Will he make representations to the Polish Government to have the telephone link re-established?

Mr. Rifkind: We shall certainly do all in our power to enable those in the United Kingdom who wish to maintain contact with friends or relatives in Poland to do so. My hon. Friend will know that the matter is ultimately within the control of the Polish authorities.

Oral Answers to Questions — EUROPEAN COMMUNITY

Common Foreign Policy

Mr. Knox: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on progress towards a common European Economic Community foreign policy.

Mr. Hicks: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on progress towards a common European Economic Community foreign policy.

Mr. Hurd: In the London report on political co-operation agreed in October 1981 during our Presidency, Foreign Ministers of the Ten reaffirmed and strengthened their commitment to consultations on foreign policy questions and agreed on measures to improve the speed and efficiency of political co-operation. The swift and effective action by our partners following the invasion of the Falkland Islands by Argentina is a striking demonstration of the solidarity which co-operation in foreign policy has made possible and which is an important pressure on Argentina to withdraw from the Falkland Islands.

Mr. Knox: Does my right hon. Friend agree that the events of the last few weeks have emphasised the importance and necessity of having a common EEC foreign policy?

Mr. Hurd: Indeed. This is an increasingly important factor in the world, and we are working hard to keep the Ten together.

Mr. Hicks: Do not these developments, not only in the South Atlantic, but in the Middle East, emphasise the need for a continuing common foreign policy, so that we do not always find ourselves in the situation of having to respond to international developments?

Mr. Hurd: I think that that is right. We are working in that direction, and that is why we have strengthened the machinery. However, the machinery is not much good unless there is a continuing political will.

Mr. Christopher Price: What is the policy of the EEC Foreign Ministers towards help, both military and otherwise, for the military dictatorship in Turkey, which invaded a Commonwealth country in respect of which Britain has solemn treaty obligations to protect yet did absolutely nothing whatever about it? If Turkey either harmed the rest of Cyprus or invaded the Greek islands, would Britain go to her aid, in concert with the other EEC countries?

Mr. Hurd: Turkey is a member of the North Atlantic Alliance. We are keen that she should remain so and keep in the closest touch with us. Questions about Cyprus are a different matter, but as to internal developments in Turkey, we have noticed with satisfaction the timetable for the return to democracy.

Mr. Jim Spicer: Does my right hon. Friend accept that the quite disgraceful way in which the Irish Government broke ranks with our partners in the Community constitutes a major setback to all our hopes for such a common foreign policy?

Mr. Hurd: The Irish Government joined the rest of the Ten in the practical measures against Argentina, which


have played a big part in securing support for Britain. We think that the Irish Government made a mistake yesterday and that the line they took could be a hindrance to getting the peaceful settlement that we and they want.

Mr. Heffer: Has the right hon. Gentleman taken note of the statement by Chancellor Schmidt, who has suggested that we should be moving towards a ceasefire? Has he also taken note of today's speech, reported on the Tapes, by the Foreign Secretary of Denmark? Do not those, and the views of other countries, clearly indicate that while they are happy to support economic sanctions, they are not prepared to support an all-out conflict, which could perhaps get worse and lead Britain into something much more unfavourable?

Mr. Hurd: We understand the concern that our friends express and share the view that we need to move towards a peaceful settlement. I think they understand that as part of the movement towards a successful settlement, the solidarity of the European Ten is of enormous importance.

Political Co-operation

Sir Anthony Meyer: asked the Secretary of State for Foreign and Commonwealth Affairs whether, to achieve increased political co-operation within the European Economic Community, he will propose specific measures to improve consultation and concerting of policies in other than economic matters.

Mr. Hurd: As I have already indicated, the London report on political co-operation, agreed in October 1981, contains a number of measures designed to improve the working of political co-operation. These are being carried out.
We are also discussing a number of proposals for improving co-operation between member States and within the Community in a variety of ways. As my hon. Friend knows, there is also already excellent co-operation on anti-terrorism.

Sir Anthony Meyer: Is it not clear that membership of the Community is the readiest weapon in the hands of the British Government to help them achieve their political objectives? But is it not equally clear that this membership poses a corresponding obligation not to place too great a strain on European Community solidarity and also imposes an obligation upon us to support, when the time comes, the vital national objectives of other members of the Community?

Mr. Hurd: My hon. Friend is right. These obligations lie upon all member States, and we are doing our best to make that clear.

Mr. Pavitt: Is the Minister satisfied that there is sufficient co-ordination between the political advances made in the Community and those of the Council of Europe? During his visit to Strasbourg last week, was the right hon. Gentleman aware of the motion on Turkey put forward by the Socialist Group of 21 countries, and does he take that into consideration in his negotiations on political matters with the Ten?

Mr. Hurd: Yes, we try to keep the two in harmony as far as we can. There was a good discussion on Turkey between Ministers in the Council of Europe last week, in which the Turkish Foreign Minister played a helpful part.

Mr. Bill Walker: When my right hon. Friend discusses co-operation with his Common Market partners, will he remind them that the EEC represents about half of the world's democracies and that what we are doing in the Falklands is defending democracy and the rule of law?

Mr. Hurd: I think that our partners clearly understand that when they act to support us they are not simply doing us a favour but are supporting principles of international law that are extremely important for them as well.

Mr. Hooley: Is the Minister aware that political co-operation among Western European countries is perfectly feasible without the Treaty of Rome and that the United Kingdom's relations with other European countries were happier, more constructive and more productive before we joined the Community than since?

Mr. Hurd: If the hon. Gentleman and his friends believe that, they are living in cloud-cuckoo-land. The fact is that political co-operation has been painfully and slowly constructed on the basis of the Community.

Budget

Mr. Spearing: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement concerning current negotiations within the European Economic Community concerning adjustment of the British contribution to the Community budget.

Mr. Pym: The Foreign Ministers of the Community had a thorough discussion of the budget problem on 27 April and are agreed on the need for an urgent solution. The next discussion of this subject may take place during the meeting already planned for 8 and 9 May. I have been continuing to press for a settlement which will be fair for Britain and fair for the Community too.

Mr. Spearing: Will the right hon. Gentleman give an assurance that Britain will accept nothing less than the existing arrangements, preferably for a period of four rather than three years? In any consideration of political co-operation, is it not important that acceptance of our requirements as fair and just should be the first step to be taken by our so-called partners?

Mr. Pym: It is a pity that the arrangement agreed in 1980 did not endure longer. I should also like to negotiate a longer arrangement this time. I cannot say whether that will be possible, but my predecessor worked for that. Indeed, I have worked for that since taking office and will continue to do so. However, we shall have to see how the discussions go.

Mr. Stokes: In any discussions on the budget or wider aspects, will my right hon. Friend remind our EEC partners that after the last war it was British forces who liberated all those countries? We expect their support now that we are trying to liberate British territory.

Mr. Pym: My hon. Friend's remarks are perfectly true. However, we are grateful to the member States—I have expressed our gratitude to them—for the support that they have given us over the issue that is now causing us so much immediate difficulty. They came to our assistance positively and speedily and that has been very helpful.

Mr. Guy Barnett: Will the right hon. Gentleman give an assurance that the United Kingdom's bargaining position has not been circumscribed by concessions made


in the negotiations on trade sanctions against Argentina? Will he further assure the House that the massive farm price increases that the Government agreed to last week were not the result of a deal made during the sanctions negotiations?

Mr. Pym: The action in the Falkland Islands and the help and support that we have received from the Community is not in any way associated with the budget or the mandate. In the meetings that I have had none of the Community Ministers suggested that that was so. Therefore, the hon. Gentleman can have confidence.

Falkland Islands

Mr. Speaker: Statement, Mr. Secretary Nott.

Mr. Harry Greenway: On a point of order, Mr. Speaker.

Mr. Speaker: Order. I will take points of order after the statements.

The Secretary of State for Defence (Mr. John Nott): With permission, Mr. Speaker, I should like to make a further statement about the Argentine attack on HMS "Sheffield". In the statement I made to the House late last night I provided an outline of the attack on HMS "Sheffield" and of the loss of one of our Sea Harriers and its pilot. The pilot was Lieutenant Nicholas Taylor. His next of kin have been informed, and the whole House will, I know, wish to join me in expressing sorrow and deepest sympathy with his family.
It is entirely right that the House should now have as full an account of the attack on HMS "Sheffield" as I am able to give today. The House will understand why it will be necessary for me to repeat some of the details I provided last night.
At about 3.30 London time yesterday afternoon HMS "Sheffield" was attacked by Argentine Super Etendard aircraft which launched Exocet missiles. HMS "Sheffield" was some 70 miles off the Falklands enforcing the total exclusion zone, together with other elements of the task force. One missile missed the ship; the other hit her amidships. The resulting explosion caused a major fire. Although attempts were made to extinguish the fire for nearly four hours, with the assistance of fire-fighting teams from other ships in the area, it eventually spread out of control. At about 7 pm London time the order was given to abandon ship. Ships of the task force in the area picked up survivors, and the latest information I have is that about 30 men are still missing. A further number sustained injuries, and they are being well cared for under medical supervision. We have no further details of casualties at the present time. The ships are still engaged on operations and I know that the force commander will provide further information just as soon as he is able to do so. All the next of kin of the ship's company are being informed. The thoughts of the whole House are with them at this sad time.

Mr. Denis Healey: I associate the Opposition with the Secretary of State's tribute to the courage of the Harrier pilot and the crew of HMS "Sheffield" and we extend our sympathy to the families of those who gave their lives in defence of a principle which is regarded by all right hon. and hon. Members as one of great importance.
Is there any truth in reports in the American press and on American television that a major naval engagement is proceeding in the South Atlantic? May I also revert to an issue of great importance for the future that I raised yesterday? I think that the right hon. Gentleman will concede that the Argentines knew the position of our task force yesterday and that, therefore, its position on Sunday when the attack on the Argentine cruiser took place no longer needs to be concealed from the House or the world.
I hope that the right hon. Gentleman will find it possible to give us a better idea of the distance between—[HON. MEMBERS: "Why?"] I will explain why in a moment. I hope that the right hon. Gentleman will give us a better

idea of the distance between the point where the engagement took place and the task force. If he is unable to do so, right hon. and hon. Members and foreign countries are bound to take his silence as implying that the decision to attack the cruiser was taken by the submarine commander without reference to the commander o f the task force—perhaps because, as the Secretary of State suggested yesterday, the submarine commander was unable to communicate with the task force commander.
If that were the case, it argues that there is a serious handicap in political control of our forces, at a time when, as the House agrees with the right hon. Gentleman, we must always use minimum force under political control to achieve the diplomatic objective.

Mr. Nott: I appreciate the right hon. Gentleman's opening comment. Many men are missing and have probably died defending principles that the right hon. Gentleman said that he thought were supported by the House. I much appreciate those words.
We have no knowledge of any naval battle going on in the Atlantic at present. I am aware that there have been reports from American sources that one is taking place. I cannot be sure, but we have no reports and I did check on that quite recently. [HON. MEMBERS: "Not sure?"] I am sorry, but it is impossible at a distance of 8,000 miles to require our task force commander to communicate with London repeatedly during the day.
On the question that the right hon. Gentleman asked yesterday about the distance, I see no reason why we should not be able to provide that information within a few days. There is no reason to conceal it. We think that HMS "Sheffield" may have been detected by an Argentine reconnaissance aircraft. We cannot be sure, but we think that that may have been the case and perhaps that was the reason why the attack with Exocet missiles was successful. That underlines the fact that we must not, on any account, put our ships at hazard by giving information prematurely, but I certainly do not want to conceal from the right hon. Gentleman information that can be safely announced.
On the right hon. Gentleman's final question, I made it clear yesterday that every action by our foces in the South Atlantic is taken within strict political control and authority. The actual decision to launch a torpedo was clearly one taken by the submarine commander, but that decision was taken within very clear rules of engagement that had been settled in London and discussed by the Government. As I made clear yesterday, we regarded the "General Belgrano" as a threat to our forces and we could not conceivably have had any lesser rules of engagement than those which we issued, which were to allow our 'ships to defend themselves, as a fleet.

Mr. Alan Clark:: Does my right hon. Friend agree that the loss of a ship is a dreadful thing for the Royal Navy and that whatever declamations of national purpose and heroism may be made, and with which I fully concur, nothing can make up for the personal, terrible grief and sense of loss of the next of kin? Will he assure the House that wherever it is humanly possible the next of kin will hear of such events before the news is released to the agencies? Would it be possible for an officer to visit the next of kin in every case to assure himself that no immediate personal hardship arises and to explain to the next of kin their entitlement to pensions and other benefits?

Mr. Nott: As my hon. Friend says, it has been a dreadful event. An organisation has been set up to process all casualty information and there are sub-units in naval bases that receive information and inform the next of kin of men of the Royal Navy. Next of kin are normally informed by selected officers from local establishments, preferably by a home visit but by telephone if essential. This is done as quickly as possible after information about casualties has been received from the task force. I entirely agree with my hon. Friend that the procedures are very important and where possible should be done by personal contact.
It would be much appreciated by the Royal Navy and, of course, by the next of kin if those who are involved in this tragic event could be given some privacy by the media in the next few days. [HON. MEMBERS: "Hear, hear".] I ask that only because of certain problems which have arisen today.

Mr. David Steel: My colleagues on the Liberal Bench would obviously wish to be associated with the expressions of sympathy from the Government and the official Opposition to the relatives of those lost in this terrible disaster.
Will the right hon. Gentleman accept that this incident, together with the sinking of the Argentine cruiser, gives added urgency to the need to seek an effective diplomatic solution to the dispute? Is it the case that consideration had been given to supplying HMS "Sheffield" with a stretched version of Sea Dart with updated tracker radar, and was that one of the casualties of the defence review?

Mr. Nott: I am most grateful to the right hon. Gentleman for his initial comments about the tragedy. He is right, of course: we want a diplomatic solution. We shall continue to strive for it. My right hon. Friend the Foreign Secretary will make a statement on that subject in a moment.
The "Sheffield" was armed with Sea Dart missiles of the latest type. The missiles are an area air defence weapon. They can be used, but not very successfully, against incoming missiles of a particular type. They are primarily for engaging incoming aircraft on an area basis. That was the principal defence of the "Sheffield". We do not know why the Sea Dart system did not successfully engage the aircraft. It is possible that the aircraft came in very low under radar cover, but there was nothing in the equipment of the ship which differed in any way from the normal complement of weapons on our type 42 destroyers.

Mr. Geoffrey Johnson Smith: As the battle goes on, more and more of us are concerned about the presentation of what happens. Leaving aside whether the statement last night was necessary, what should be of more immediate concern to my right hon. Friend within his total command is the extent to which we should be briefed in future through television by the Ministry of Defence in the way that it has done. I am sure that my right hon. Friend would agree that much of that briefing is for the benefit of the press who are incapable of taking shorthand. Perhaps it might be better to review those arrangements.

Mr. Nott: I am not entirely clear to what my hon. Friend refers. The Ministry of Defence spokesman briefs the press every day when there is an incident. He gives a purely factual account of what has arisen. I think that my

hon. Friend must be referring to all sorts of other briefings which are given by other people. The Ministry of Defence briefing is a purely factual one. It never contains opinions and that is how we wish to keep it.

Several Hon. Members: rose——

Mr. Speaker: Order. There is a further statement to follow. I propose to call three more hon. Members from either side on this statement and then move on to the second.

Mr. Martin Flannery: Is the Secretary of State aware that the disaster to the "Sheffield", a ship which has immense ties with the city of Sheffield, has resulted in a great groundswell of desire, not only in Sheffield but much further afield, for peace negotiations? Is the right hon. Gentleman aware that telegrams have come to Sheffield city council from many factories and to hon. Members representing Sheffield constituencies? Is he further aware that this afternoon in the city there will be an ordinary council meeting at which the leader of the council will move a resolution in which he asks, on behalf of the council, for peace negotiations through the United Nations? Does the right hon. Gentleman not agree that the insistence that no negotiations will take place as long as those troops are on the Falklands is now a brake against the struggle for peace? Is it not time for that to be quashed and for Britain to go to the United Nations to discuss the whole question of a peaceful solution through negotiation?

Mr. Nott: Of course there is a desire for peace—that desire is widespread in the country. It is shared by all my right hon. and hon. Friends. We want to obtain, as soon as we possibly can, a diplomatic settlement to the problem. However, I hope that the right hon. Member for Leeds, East (Mr. Healey) will forgive me if I repeat a very fair and reasonable comment which he made this morning on the BBC "Today" programme.
The right hon. Gentleman said:
It would not be to Britain's advantage to agree to a ceasefire unless we were clear that we had a negotiating process which would get the Argentines off the islands.
That is the general view of the whole House. It is not shared by every hon. Member, but it is the general view of the House, and I share it.

Mr. Peter Griffiths: Does my right hon. Friend agree that the most appropriate memorial to the brave young men who lost their lives in HMS "Sheffield", the home port of which is in my constituency and whose loss has brought tragedy to the city and to my constituents, would be to carry through the enterprise for which they gave their lives as quickly as possible and with as little further loss of life as may be possible? Does he agree that the quickest way in which that could be done would be for the Argentine Government to agree to remove their troops from the Falkland Islands?

Mr. Nott: I entirely agree with my hon. Friend. As I said yesterday, the way in which the conflict can be ended straight away is for the Argentines to agree to implement resolution 502. If, in the next few days, the Argentines do not challenge our ships and men and do not threaten them, and if they cease entering the total exclusion zone, no casualties can arise. But the way to solve the conflict is for the Argentines to abide by the United Nations resolution.

Mr. Jack Dormand: In answer to my right hon. Friend the Member for Leeds, East (Mr. Healey), the Secretary of State said that there were difficulties in maintaining communication between the task force and the Government. I fully accept that there must be real difficulties in doing that, but the Secretary of State then went on to say that there was full political control of the decisions of the task force. Some hon. Members are extremely concerned about the way in which the decision was taken on the firing of two torpedoes. Is there not some inconsistency there which requires explanation?

Mr. Nott: I shall give an example to the hon. Gentleman of what I meant. When our ships are engaged in extremely dangerous operations in which they are subject constantly to attack, they frequently—and rightly—impose on themselves radio silence. Unless the ships are maintaining radio silence, their position can be detected. Therefore, there will be periods when, for very good operational reasons, we are not in contact with all our ships. That was the type of example that I was trying to give. The communications with the task force by satellite and by other methods are excellent and are more than sufficient for us to pass political directives and political orders to the commander but sometimes there may be delays for the sort of reason that I have given.

Sir Frederick Burden: While we are pursuing every effort to bring about a diplomatic settlement of the dispute, is it not evident that the Argentines at this moment are determined to deploy all the military strength that they can against our task force? Therefore, should we not recognise that fact and no longer talk about using minimum force against an enemy who is prepared to deploy his greatest strength against us but use our strength as cleverly as possible to bring the dispute to an end and bring the Argentines to the diplomatic table?

Mr. Nott: When we say that we wish to pursue minimum force, that does not mean in any way that we are asking our forces to hold back on the pursuit of their objectives, nor in any way does it suggest that they are not totally free to defend themselves against attack and, when they are threatened, to attack the enemy first. They are not

required to hold back in any way. I agree with my hon. Friend that the aggression started on the Argentines side. Since then they have continuously reinforced the islands, which they are required to leave by resolution 502. Before the "General Belgrano" was sunk—I understand the strong feelings in the House about that incident, which I share—it threatened the security and safety of our men and ships. In that situation it would not have been possible for us to ask our forces to hold back in defending themselves.

Mr. Allen McKay: Will the Secretary of State give us some information on political control, which has been exercising the minds of many people outside the House? Will he assure the House and many people outside that political control does not slow down any defensive action that the fleet may take in its task, taking into consideration the fact that HMS "Sheffield" was a type 42 anti-aircraft destroyer, built purely and simply as any anti-aircraft destroyer and the fact that radar picks up the planes many miles before they come into firing range?

Mr. Nott: I can give the hon. Gentleman that total assurance. There is nothing in any directives that we have given which can in any way hazard our ships, which are confronted with a difficult task.

Sir Patrick Wall: Is not the loss of HMS "Sheffield" a clear indication that we have now reached the missile age? Is my right hon. Friend aware that the only effective defence against sea-skimming missile s is Sea Wolf? Will my right hon. Friend press ahead as a matter of the utmost urgency with lightweight Sea Wolf and see that that weapon system is installed in most of our ships?

Mr. Nott: I share my hon. Friend's concern about the development in missiles. As he knows, we have made the radar tracker for the lightweight Sea Wolf a major priority in our programme. I agree with my hon. Friend. On; of the factors that perhaps has led to us not having anti-missile missiles as fully on our ships as I should like is that the Soviet Union and its Warsaw Pact allies until recently were not deploying sea-skimming missiles. That is one of the reasons why, in retrospect, we have not moved forward as fast as we should.

Falkland Islands

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Francis Pym): My right hon. Friend the Secretary of State for Defence has just spoken about military aspects of the situation. I should like to add my own tribute to the courage of the crew of HMS "Sheffield" and of the Harrier pilot and my deep sympathy to the families.
The military losses which have now occurred on both sides in this unhappy conflict emphasise all the more the urgent need to find a diplomatic solution.
The House will wish to know that since my return from the United States on Monday I have remained in the closest possible touch with Mr. Haig. As I reported to the House yesterday, we are working very actively on ideas put to us by Mr. Haig, including some advanced by the President of Peru. Yesterday afternoon, after my statement, I sent a constructive contribution of our own to Mr. Haig. He is taking this fully into account. I shall be in touch with him again later on today.
I want to tell the House that a vital ingredient of the ideas on which we are working is an early ceasefire and the prompt withdrawal of Argentine forces. I can assure the House that we are sparing no efforts in the search for an acceptable solution in line with the principles which we have stated on several occasions.
The points which were put to me in New York by the Secretary-General of the United Nations are also receiving our very careful attention. I have been in touch with Mr. Perez de Cuellar about this since my return from New York and will continue to keep in close contact with him.
There are many points of similarity between the Secretary-General's thinking and the points we are pursuing with Mr. Haig. Indeed, Mr. Perez de Cuellar's helpful ideas seem certain to be reflected in the basis of any solution which we may be able to achieve.
I can assure the House that any obstructionism there may be will not come from our side. Although it is we who have been the victims of aggression, it is also we who are working tirelessly and constructively for a peaceful solution.

Mr. Denis Healey: I thank the right hon. Gentleman for making the statement. I hope that he will not hesitate to make further statements whenever he has further information to give us. I thank him particularly for his opening words. We all feel that if military escalation continues in the way in which it has done over the last few days, more lives—both Argentine and British—than there are inhabitants on the Falkland Islands could be lost. That underlines the paramount necessity of achieving a diplomatic solution.
The right hon. Gentleman referred to the ideas of the American Secretary of State. Will he confirm reports that the American Secretary of State has asked for a two-day ceasefire so that the diplomatic possibilities can be further explored? If so, what response have Her Majesty's Government given?
I particularly welcome what the right hon. Gentleman said about the United Nations Secretary-General. He was a great deal more forthcoming than yesterday, when he was more forthcoming than last Thursday. I see that the United Nations Secretary-General is reported in today's

edition of The Times as saying that the suspension of the peace initiative by Mr. Haig had created a diplomatic vacuum which only the United Nations could fill.
As the right hon. Gentleman will know, that has been the view of Her Majesty's Opposition for some time. I understand that the Argentine Government have already agreed to accept the good offices of the United Nations. I appeal to Her Majesty's Government to do the same. Any doubts that they might have had at one time must have been removed by the Secretary-General's statement yesterday, when he insisted on the full implementation of resolution 502, which requires the Argentine forces to leave the Falkland Islands.
I was particularly glad to hear the Secretary of State for Defence endorse my words this morning that the ceasefire must depend on agreement on a negotiating process which will get the Argentine forces off the islands. That is an important distinction from the demand that has been made occasionally, that the ceasefire cannot take place until the Argentine forces have left.
I take this opportunity to ask the right hon. Gentleman again a question that many hon. Members on both sides of the House thought was unsatisfactorily answered by the Minister of State, the hon. Member for Woking (Mr. Onslow), earlier today. The hon. Gentleman was asked by hon. Members on both sides of the House to give a firm assurance that the British forces now committed to the defence of Belize would not be withdrawn until the threat from Guatemala was seen to be removed. If the right hon. Gentleman could give us that assurance, it would do much to allay the fears that our behaviour may be misinterpreted by the Government of Guatemala in the same way as our behaviour was misinterpreted before the Argentines invaded the Falkland Islands.

Mr. Pym: I thank the right hon. Gentleman for what he said at the beginning of his intervention. I very much appreciate his remarks. I fully realise that we both share the strongest desire to achieve a negotiated settlement, if that can be done.
The right hon. Gentleman referred to the possible suggestions by Mr. Haig for a two-day ceasefire. A ceasefire must be a part of any negotiated settlement that involves a withdrawal. That is an area that is and always has been part of the discussions. I am sure that it is helpful that I am in close touch with the Secretary-General. He has offered his good offices both to the Argentine and to the United Kingdom. I have responded in that sense. The Secretary-General has not put any definite proposals to me, but we have shared our ideas and I am responding to the ideas that he sent recently.
The right hon. Gentleman referred to reports of the suspension of the diplomatic mission by Mr. Haig. There has been no such suspension. Perhaps the right hon. Gentleman was implying that in some way Mr. Haig's efforts had come to an end. That is not so. It is clear that they began a new phase when the Argentine rejected the proposals that had been put forward earlier. I am certain that it is helpful that Mr. Haig's efforts are continuing.
I do not agree that the vacuum to which the right hon. Gentleman referred can only be filled by the United Nations. I am not worried about how the vacuum is filled so long as it is filled. I have told the House all along that I believe that Mr. Haig's efforts are the most hopeful basis for a settlement, but I do not exclude anything else, and certainly not the efforts of the United Nations. That is why


I talked to the Secretary-General personally. He is in touch with both our Government and the Argentine Government. We hope that that will make a contribution. As I said in my statement, the principles and the basis upon which we are all talking have many aspects in common.
We have no plans at present to withdraw our forces from Belize. The right hon. Gentleman can be assured that his worries about the neighbouring States are the prime consideration in the Government's mind relating to what we do in connection with our forces there.

Mr. Healey: The right hon. Gentleman's statement on Belize did not carry matters further forward. I hope that he will reconsider the matter and take the opportunity later to give an explicit assurance, for which many hon. Members on both sides of the House have asked.
It has been widely reported that the United Nations Secretary-General has put forward proposals both to the British and to the Argentine Governments not on a substantive solution of the crisis, but on ways in which negotiations might be carried forward. It is also reported that he has asked the British and Argentine Governments to respond to those proposals today. Will the right hon. Gentleman confirm those reports? Will he assure the House that the Government will take the initiative in responding and will not hide behind the possible refusal of the Argentine Government to respond as was the case with Mr. Haig's earlier proposals?

Mr. Pym: There is no question of our hiding behind anything or waiting for someone else to refuse or reject. There has been no time when I have not been looking constructively for a way forward. I am in close touch with the Secretary-General and I am responding to the outlines about which the right hon. Gentleman spoke. Nevertheless, I still believe that the work that I am doing with Mr. Haig is most likely to produce a result, but no door is closed.

Mr. Healey: In answer to my earlier question, the right hon. Gentleman said that no proposals had been made by the Secretary-General. Now he tells us that proposals have been made. I do not blame him for not disclosing them. The matter requires to be kept under diplomatic privacy, but, if proposals have been made, the Opposition would wish the right hon. Gentleman to make a positive response without delay.

Mr. Pym: No formal proposals have been put to me. They were ideas. I am not sure what words to choose. The Secretary-General is receiving a response from me. I do not know what the Argentine Government are doing. I am in close touch with the Secretary-General and I am responding to him. That is the most helpful reply that I can give. It is the most positive position that I can be in.

Mr. Speaker: Order. At Question Time I gave an undertaking that I would call first the five hon. Members who waited for replies to their questions addressed to the Foreign Secretary.

Mr. Dennis Canavan: How many more lives must be lost before the Government fully realise that there cannot be a purely military solution to the crisis? If the Government are seriously intent on a long-term peaceful solution, why do they not comply with the increasing demands from some Opposition Members, and

demands being made nationally and internationally, for an immediate ceasefire and for the United Nations, not the United States, to act as a mediator?
Does the right hon. Gentleman agree that, if that is not done, the crisis is in danger of escalating into a full-scale blood bath, which no one will win, and that Britain will find itself increasingly isolated?

Mr. Pym: Of course, we would like an immediate ceasefire and an immediate withdrawal. The Argentine is under an obligation under resolution 502 to withdraw its forces. At present, however, it shows no sign of doing so. Indeed, the reverse is true. A withdrawal must be established in the first place. That is what we must achieve.
I am working with all the strength that I can muster to find a solution, notwithstanding the fact that we are the victim. We are suffering from the act of aggression. It is the Falkland Islands that have been invaded. There seems to be no desire on the other side—we have seen very little—to come to an agreement. I am doing everything that I can, because, like the hon. Member for West Stirlingshire (Mr. Canavan) and everyone everywhere, I want a settlement. However, the Argentine must withdraw its forces.

Mr. Michael Neubert: Is it not clear that, although the 8,000 miles between Britain and the Falkland Islands gave time for negotiations, the indivisibility of sovereignty allowed little scope for such negotiations? Just as the worsening weather in the South Atlantic vas undoubtedly a factor in the timing of the Argentine invasion, so the prolonging of negotiations indefinitely without the withdrawal of Argentine troops consolidates Argentine aggression. In those circumstances, does my right hon. Friend agree that the most effective negotiating weapon that is available to us is likely to be the legitimate exercise of force?

Mr. Pym: I note carefully what my hon. Friend has said. I should infinitely prefer, as I am sure would [he House, that the Argentine troops left the islands under a peaceful umbrella rather than have to be driven out by force. If we can possibly achieve that, I believe that everyone will be immensely relieved. We do not know whether that can be done, but I shall leave no stone unturned in an attempt to achieve it.

Mr. Bob Cryer: Will the right hon. Gentleman confirm that resolution 502 does not give carte blanche to the Government for any military action, but calls for the cessation of hostilities and the negotiation of a peaceful resolution to the dispute? Do not the Government recognise that escalation of military activity could result in the deaths of Falkland Islanders—the very people we claim to be defending? Does the right hon. Gentleman not realise that, as military action goes on, the Government seem to look less and less for a diplomatic settlement and more and more for a military one in what seems to many people to be a tragic and misguided escapade?

Mr. Pym: That is not true. The resolution also calls for a withdrawal. That is the part that the hon. Gentleman did not mention. I think constantly of the islanders. They are suffering at the moment under the heel of the invader, whom they did not want and did not invite and who intends to impose upon them a way of life and Government that


they do not want. It is in their defence that we have taken the steps that we have. Of course they are suffering. Any invaded country suffers. There are too many invaded countries in the world at the moment. We have the islanders very much in mind. It is to their rescue that we have devoted all our efforts for which we have received the support from our friends all around the world.

Mr. Jonathan Aitken: I warmly welcome my right hon. Friend's constructive communications with the Secretary-General of the United Nations. Does he agree that there still remain formidable problems in communicating with the Argentine junta as its leaders have so far shown themselves to speak with divided, contradictory and, at times, incoherent voices? In those circumstances, will my right hon. Friend be exceedingly cautious about negotiating terms for a ceasefire or anything else until the Argentine has shown, by its deeds, that it is withdrawing its troops from the Falklands?

Mr. Pym: Yes, I shall show appropriate caution. I shall also show appropriate enthusiasm. There is no doubt that it is exceedingly difficult to negotiate with the Argentine, as the construction of the Government there is such that sometimes the decision of the President or of the Foreign Secretary is easily overthrown—sometimes in the middle of the night. It is not easy to negotiate with them. Nevertheless, I shall continue to bear in mind, as I believe I have all along, the factors to which my hon. Friend referred.

Mr. D. A. Trippier: In view of the events of the past few days, is it correct to assume that the former initiatives that were taken by Mr. Haig are now interlinked with those pursued by the Peruvians?

Mr. Pym: The proposals that were produced by the United States a week or 10 days ago but which were turned down by the Argentines are now over. Since then, a number of Governments have produced ideas. The ideas on which we are now working are a combination of United States proposals and proposals from the President of Peru. It is a mixture.

Several Hon. Members: rose——

Mr. Speaker: Order. I propose to call three more hon. Members from each side and then to move on.

Dr. David Owen: Is the Foreign Secretary aware that we strongly support his insistence on linking any early ceasefire with the prompt withdrawal of Argentine forces, no doubt with phased withdrawal of British forces from the Southern Atlantic as well?
Will the right hon. Gentleman give a little more detail about the activities of the Peruvian Government? Is there any chance of the Peruvians actually putting down proposals rather than going into a formal Security Council debate?
Does the right hon. Gentleman recognise that many people in the world now expect some clear indication of the British Government's long-term position? Will he come forward with a positive welcome for the concept of trusteeship councils?

Mr. Pym: I am grateful for the right hon. Gentleman's first remark.
Some proposals that originated entirely in Peru have now been, as it were, absorbed in the other negotiations designed and thought up by the United States. I have made a constructive contribution to the latest suggestions, and I hope that out of them will come a proposition with some chance of success. I cannot say more than that at this stage. The United States Secretary of State is in close touch with Peru. I think that working in that way, through them and the friends of the Argentines, may be a good way to negotiate with the Argentines.
As to the long term, Her Majesty's Government have an open mind about what might be the ultimate solution. The United Nations trusteeship concept is most certainly one of the possibilities and may eventually prove to be a highly suitable one. Whether it will match the needs of the situation later, I do not know, but I would not exclude anything. I think that I can give a reasonably positive response to the right hon. Gentleman on that, but that is in no way to prejudge the matter. It is certainly among the concepts that can be considered.

Mr. Norman St. John-Stevas: Will my right hon. Friend reiterate from the Dispatch Box that it was in support of our diplomacy that the overwhelming majority in the House supported the dispatch of the task force to the South Atlantic and that that resolution still holds good? I congratulate my right hon. Friend and wish him well in his efforts to secure a diplomatic solution to the crisis, as that is what the overwhelming majority of people want—not an escalation of violence.

Mr. Pym: I am grateful to my right hon. Friend for what he said. The strategy must be seen as a comprehensive goal. The diplomatic activity, the economic pressure, the task force and the military pressure are all part of the same process of bringing pressure to bear on the Argentines to secure, one hopes by peaceful means, the withdrawal that everybody wants.

Mr. Donald Stewart: I should like to associate my hon. Friend the Member for Dundee, East (Mr. Wilson) and myself with the expressions of sympathy for those who lost their lives in the recent action.
Does the Foreign Secretary accept that the dispatch of the task force, combined with diplomacy, which was wholly justified, seems to have come to an end as a police action, and that the next stage must be negotiation or all-out war? In those circumstances, and in view of what he said in answer to an earlier question about the eventual settlement of the dispute, will the right hon. Gentleman confirm that he will continue to press for negotiation and a ceasefire concurrently with the removal of Argentine troops from the Falkland Islands?

Mr. Pym: I am grateful for what the right hon. Gentleman has said. I assure him that I shall certainly continue those efforts. As for the long term, that should be negotiated and discussed around the table with the parties involved and others in whatever forum is thought best at the time. My immediate concern—and I believe it is the immediate concern of the House—is how to reach a position in which such negotiations are possible. That requires withdrawal and a ceasefire. It requires peace again. However difficult it may be, I am doing everything possible to try to achieve that.

Sir Frederic Bennett: In view of all the remarks about principles today, will my right hon. Friend


reclarify for the benefit of all of us the principles which, in his view and ours, morally justify our intervention? I understand them to be, first, the self-determination of the people of the Falkland Islands and, secondly, that in this day and age acts of unprovoked aggression shall not succeed. The two are linked, but they are not necessarily the same. I say that in view of the remarks of the Deputy Leader of the Opposition, who compared the number of casualties with the number of Falkland Islanders. That may have relevance to the first principle, but it has none at all to whether in this day and age acts of unprovoked aggression shall be allowed to succeed.

Mr. Pym: We are in business to prevent a military dictatorship and an undemocratic Government from imposing on a smaller country, by aggression and invasion, a type of government that the people of the smaller country do not want. The principles that moved Members of the House are set out in the United Nations charter in the principles of democratic rights and so forth. I think that people throughout the world understand very well what this is all about.
During my recent visit to the United States, I went out of my way to emphasise time and again that this was not just a British problem but one in which many other countries had an interest, particularly the democracies and the small countries, many of which are fearful enough already. If we could achieve success in this case, one hopes by peaceful means, I believe that the world would heave a sigh of relief and that, for the ensuing few years at least, it would be a more peaceful, stable and less fearful place in which to live.

Several Hon. Members: rose——

Mr. Speaker: Order. It has become clear to me that, to be fair to the larger parties as well as to the minority parties, I shall have to call two more hon. Members than I had intended from each side to enable me to achieve a balance.

Mr. A. J. Beith: Is there now any prospect that, with the help of the United Nations Secretary-General and perhaps the Peruvian Government, the real holders of power in the Argentine junta may be brought into the deliberations, as Mr. Costa Mendez clearly had his authority to negotiate a settlement cut from under his feet at a crucial moment?

Mr. Pym: I am not in a position to answer that question competently, but the signs are that the junta makes up its own mind with the generals and admirals and anyone else it cares to consult. I can only hope that a positive answer will be forthcoming if we can reach a stituation in which proposals can be put to the Argentines.

Mr. Ian Lloyd: The House and the country clearly wish my right hon. Friend well in any negotiations that he thinks it worthwhile to undertake and which do not prejudice our fundamental national objectives, but is it not preferable that we should recognise, sooner rather than later, that, failing a negotiated settlement, the task force will not be able to achieve its objectives unless the Argentines are not capable of operating missile-carrying aircraft from any runway within striking distance of the carrier fleet?

Mr. Pym: Naturally, the military aspects are being considered in great depth, and possible plans are being prepared. That is entirely right, because we have a task

force operating in the South Atlantic. But let us at present concentrate our minds on trying to achieve a peaceful settlement, which is what the House wants.

Mr. Frank Dobson: Does the Foreign Secretary agree that there have been serious shortcomings in the conduct of Britain's foreign affairs in that, having set out to build up military pressure and at the same time to seek a diplomatic solution to the problem, the Government found themselves building up military pressure at a time when the Haig initiative had collapsed and the Government had failed to make arrangements at the United Nations or anywhere else for another mediator to be on hand?

Mr. Pym: I can only say to the hon. Gentleman that, without military pressure, there would be no chance whatever of an Argentine withdrawal.

Mr. Nicholas Winterton: Does my right hon. Friend agree that the brave men and women of our Armed Services in the task force are shouldering the burden for the whole world in upholding law and order? Does he realise that the longer negotiations continue, the greater will be the danger to them? Has the Argentine junta or any of its representatives given any indication at all that it is prepared to withdraw from the Falkland Islands in accordance with part of Security Council resolution 502 which, I remind the House, was passed, with much support for us, a month ago?

Mr. Pym: On the latter point, there has been all too little indication so far. On the former point, I do not see our diplomatic efforts as in any way conflicting with what is happening to our task force. The task force has its operating instructions and is doing its job as best it can. That in no way conflicts with the diplomatic efforts that we are making. I hope that that reassures my hon. Friend.

Mr. Nigel Spearing: Is it not now opportune for the United Nations and its members to act under article 41 of the charter and to impose much greater economic sanctions on the Argentine? Unless that is done—and, I hope, subsequently lifted—why should the Argentines now agree to a negotiated settlement?

Mr. Pym: I suppose if they come to the conclusion that it is in their interest. Of course, it would be helpful if the United Nations passed such a resolution, and if that resolution were than carried out, but I doubt whether that would happen.

Mr. Eldon Griffiths: As my right hon. Friend appeared to imply that a temporary cessation of hostilities might form part of the current proposals, will he assure us that the British Government will agree to no ceasefire if its only or main effect would be to reduce the military pressure on the Argentine and enable the Argentine to consolidate its illegal occupation of the islands?

Mr. Pym: As I said earlier, arrangements for a ceasefire are part and parcel of a withdrawal. I certainly have in mind what my hon. Friend said.

Mr. Healey: I thank the right hon. Gentleman again for the frank way in which he has answered questions, and I hope that he will not hesitate to come back to the House. I thank him, too, for the increasing emphasis that he is placing on the United Nations. I say, once again, that there is a risk that, unless we take an early initiative within the


United Nations, we may find that our action is pre-empted by representatives in the Security Council whose interests are by no means as benign or well-informed as our own.
Finally, the Opposition will wish to keep under consideration the proper date on which the House should have another debate on the matter. If we reach a view on the matter, I hope that it will be supported by the Government.

Mr. Pym: I thank the right hon. Gentleman for his supportive remarks. The fact that the House of Commons has broadly the same desires can do nothing but help the operations, both diplomatic and military, that are in hand at present. I am not convinced that another initiative by us in the United Nations would help. It is a possible option, but at the moment we have resolution 502, which has to be, but has not yet been, carried out. I have to bear in mind carefully how it is to our best advantage and to the advantage of securing a peaceful settlement to take any further initiative in the United Nations. Nevertheless, I am most grateful to the right hon. Gentleman for what he said.

Business Committees

Mr. John Roper: On a point of order, Mr. Speaker. I wish to raise a matter on Standing Order No. 43. I make it clear at the outset that I do not wish to challenge your unfettered freedom to nominate whoever you consider proper to a Business Committee. However, I raise this issue in the light of the nominations that you have made to the Business Committee on the Employment Bill, which appear in the annex to the Votes and Proceedings today. I submit that, in making further nominations to the Business Committee, you might consider the precedents of your appointments to Business Committees in the last Parliament, when you attempted to ensure that the representation on Business Committees reflected the "composition of the House".
I realise that paragraph 2 of Standing Order No. 62, which refers to the "composition of the House" in the appointment of Committees by the Committee of Selection, does not apply directly to Business Committees, but I submit that, in exercising your unfettered discretion in appointing Business Committees, you should consider the representation not only of the Government and of the official Opposition but of the remainder of the House.
It is my understanding that if the conventions followed under Standing Order No. 62 were to be applied by you in making your nominations to a Business Committee of seven Members, as you have done today, there would be representation on such a Committee not merely from the Government and the official Opposition but also from the remainder of the House.
Without in any way wishing to challenge your appointments, I ask you to bear those points in mind in making further nominations to Business Committees.

Mr. Ron Leighton: Further to that point of order, Mr. Speaker. Is there any logical reason why the Social Democratic Party should have any representation on this Business Committee? I ask that not only because so few of its members have been elected as Social Democrats, but because on Second Reading the Social Democratic Party voted for the Bill and supported the Government. That, at least, is what I think happened. Fifteen Members voted for the Bill, five voted against, and five abstained. The broad mass of the party supported the Government, so what possible right does the party have to a seat on the Business Committee?

Mr. Speaker: I am grateful to the hon. Member for Farnworth (Mr. Roper) for giving me notice of his point of order. There is substance in the hon. Gentleman's contention that a case can be advanced for the smaller parties to be represented on the Business Committee of seven hon. Members. However, I should make it clear that while Standing Order No. 43 places the responsibility of nominating the Business Committee on the Speaker, it has never been the practice of the Chair to invite hon. Members to serve on that Committee, but rather to accept an assurance that the membership proposed to him is agreed both as to names and party composition. I understand that discussions are now proceeding through the usual channels on this matter. There is agreement about minority party representation, but disagreement about which hon. Member should be nominated for the Committee. I shall look into the matter.

Mr. Roper: I am very grateful to you, Mr. Speaker. I hope that you will look into this matter further to ensure that, as far as possible on Business Committees, there is a fair representation of all parts of the House.

Mr. Speaker: I shall do my best, although it is a little late in the present case.

Local Authorities (Restoration of Democratic Rights)

Mr. Bob Cryer: I beg to move,
That leave be given to bring in a Bill to enable local authorities to make decisions according to local need; and for connected purposes.
Although I realise that the tragic affair of the Falkland Islands overshadows matters at present, it is nevertheless true that the Government can be criticised in other ways, which we need to point out and remedy by means of legislation.
Since 1979, the Government have hounded local authorities in a continuing and vicious attack, particularly those local authorities that are Labour-controlled. However, Tory-controlled authorities have also been affected. In Bradford, the leader of the Conservative group, as well as the leader of the Labour group, helped to launch a campaign to keep local government local.
There is no reason why local government should have been attacked in this way, especially over expenditure. I quote:
At the end of each year local government expenditure has invariably been only 1 or 2 per cent. off target—a far better record than that of central Government".
Those are not my words, but the words of George Jones, Professor of Government at the London School of Economics, and John Stewart, Professor of Local Government Studies at the University of Birmingham. In The Times of 14 August 1981, they said:
No Official Secrets Act protects local authorities. Their committees work in public. Detailed decisions are published in a way that would be inconceivable to central government. Local authorities are close to their citizens and very visible. The hidden operations of central government present the real dangers of inefficiency and waste.
Local government control of expenditure since 1975 has been better than that of central government.
If we accept the need for a balance between a framework of central Government legislation and the rights of local authorities to respond to the electorate that put them in power, clearly that balance has been savagely kicked aside by the gauleiter of Marsham Street, the Secretary of State for the Environment, backed by the political zombies on the Government Back Benches.
My Bill will repeal those sections of the Housing Act 1980 that give council tenants the right to buy, the right to a discount, and the right to a mortgage. It will enable local authorities themselves to determine whether to sell houses in the light of the needs of the area. Thousands of couples are in need of a home and the compulsory selling of a house will not remove one person from the massive waiting lists that have been built up under the Tories. Private tenants have no right to purchase and the Minister is satisfied by the voluntary arrangements that prevail there. Voluntary arrangements should be allowed to each local authority and my Bill will enable this to take place.
Secondly, my Bill will repeal that section of the Local Government, Planning and Land Act 1980 that enables the Secretary of State to control to an unacceptable, unreasonable and undemocratic degree direct works departments. It is for the local authority to decide the area of operation of direct works departments, which frequently provide the best system of apprenticeship and which are subject to the control of the elected representatives of the area. Indeed, in Bradford, on local government

reorganisation in 1974, the local authority inherited council house maintenance in Keighley carried out by two private enterprise contractors, both of whom were a byword for inefficiency and one of whom went bankrupt. The then Conservative-controlled local authority instituted a direct works department to remedy the deficiencies of private enterprise—deficiencies which included small private enterprise contractors being squeezed out entirely by the greed of the two monopolist contractors. Brad ford is now under Labour control and I am confident that Labour will maintain that control after the elections tomorrow
Local authorities should be allowed to develop direct works departments free from the bureaucratic restrictions imposed by Tory Governments.
My Bill will also restore the needs element to the rate support grant so that cash aid from Government will go to those areas that are in the greatest need. It should be made absolutely clear that any rate increases imposed by any local authorities have been forced on them by rate support grant cutbacks imposed by Government.
Money from central and local government supports basic services, such as social services, including meals on wheels, education, cleansing, refuse collection, care for the elderly and care for the very young. Money from Government to local authorities should be increased to help generate jobs and cut the cost of swelling dole queues. My Bill will provide a means of doing this.
There are so many oppressive sections of Tory legislation that affect local government to repeal that I cannot possibly encompass them within the framework of a modest Bill such as this. But I can remove the threat of the courts and district auditor from councillors who are simply carrying out their duty by providing that, if expenditure is authorised by a duly convened full council meeting of a local authority, which is properly lawful under statute, that will prevent a district auditor imposing a surcharge on councillors or referring the matter to a court, as a district auditor did in the recent Camden case.
If people are dissatisfied they have the remedy of the ballot box and, as Lord Justice Ormrod commented, such matters should be judged there, not in the courts. Local authorities are the only elected bodies apart from this House and they should be free from any oppressive action, as opposed to supervisory action, by any district auditor.
Similarly, my Bill will prevent any attempt to allow the Comptroller and Auditor General access to local authority books. The permanent secretary at the Department of the Environment, for instance, might well be tempted to use his powers under the Exchequer and Audit Departments Act of 1866 to control local authorities through his ability to monitor the Comptroller and Auditor General.
Finally, there is one area of concern that has not been subject to statutory provision so far, and that is the area of nuclear-free zones. Over 100 local authorities have declared their areas to be nuclear-free zones, but this declaration does not have any statutory backing. Under my Bill local authorities will have the right to suspend the movement of nuclear materials through their areas or to give authority for such passage subject to such conditions as they may impose.
As Jones and Stewart, the two academics I mentioned at the beginning of my speech, said in 1981,
There is a need for new policies which will maintain and increase the strength of local government.


Labour is committed to democracy in local government and the first step to defend local services is to keep Labour in charge of local authorities in tomorrow's election.

Question put and agreed to.

Bill ordered to be brought in by Mr. Bob Cryer, Mr. David Stoddart, Mr. Robert Kilroy-Silk, Mr. Dale Campbell-Savours, Mr. Jim Marshall, Mr. Alexander W. Lyon, Mr. A. W. Stallard, Mr. David Winnick, Mr. Reg Race, Mr. Ken Eastham, Mr. Eric S. Heffer and Mr. Dennis Skinner.

LOCAL AUTHORITIES (RESTORATION OF DEMOCRATIC RIGHTS)

Mr. Bob Cryer accordingly presented a Bill to enable local authorities to make decisions according to local need; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday next and to be printed. [Bill 121.]

Orders of the Day — Finance Bill

(Clauses 18, 22, 29, 65, 71, 75, 117 and 128 and Schedule 10)

Considered in Committee [Progress 27 April]

[MR. BERNARD WEATHERILL in the Chair]

Clause 128

REDUCTION OF NATIONAL INSURANCE SURCHARGE

The Chairman: The only group of amendments today is amendment No. 30, with which it will be convenient to take amendments Nos. 24 and 25.

Mr. Peter Shore: I beg to move amendment No. 30, in page 95, line 42, leave out '2½ per cent.', and insert '1½ per cent.'.
All our debates so far on the Finance Bill have been overshadowed by the events in the South Atlantic and today's debate takes place against a background that is exceptionally sombre, so I shall say nothing further about this today except to acknowledge the obvious fact that it takes an exceptional effort of concentration for all hon. Members to examine with the care they deserve the various provisions of the Finance Bill. Nevertheless, it is our duty to do so, for the conduct of economic affairs, of which the Finance Bill forms so important a part, though it lacks the tension and compelling drama of the events in the Falklands, is and will continue to be the major focus of concern for our people throughout the life of this Parliament.
So on this the last day of the debate in the Committee stage on the Floor of the House we have chosen the subject of the national insurance surcharge. There will be no surprise that we have thought it right to move this amendment, which, as the Committee will recognise, seeks a further and larger reduction in the national insurance surcharge than the 1 per cent. cut in this year's Budget which is now embodied in clause 128 of the Finance Bill.
In the first speech that I made as Shadow Chancellor in the House, in January 1981, I urged a cut in the national insurance surcharge and since then it has been persistently advocated by the Opposition Front Bench. In last year's Budget a reduction in the surcharge was part of a five-point programme which we pressed upon the Chancellor, and on Report on 14 July 1981 we moved a new clause which would have reduced the national insurance surcharge from 3½ per cent. to 2½ per cent.—precisely what the Government 12 months later are proposing.
A year ago the Chief Secretary turned us down and now, I understand, he is proposing what we then urged upon him. The fact is that in this matter, when it comes to assisting British industry, the Government's measures are both too little and too late. Whether or not we succeed in persuading the Government to accept our amendment, on this year's precedent at least we have the possibility that


in next year's Budget, if the Chancellor and this Government are still here to present one, they will accept in 1983 what they find unacceptable in 1982.
In any event, it is right to debate the proposed cut in the national insurance surcharge for several reasons. First, it is the only substantial measure to affect industry in this year's Finance Bill. Secondly, it is the only measure that directly connects with one of the fundamental problems of the British economy, its loss of price competitiveness. Thirdly, the Government's proposal contains certain puzzles that we have a duty to explore.
Although this is the only substantial measure to affect industry in this year's Budget, there are a number of other measures ranging from aids to small firms, to capital allowances, to installation of teletext receivers and viewdata adaptors. In scale, these can only be properly described as trivial.
There are two measures that are a little more substantial, of which the measure announced to assist industry with energy costs is the first. To me and to most hon. Members on both sides of the Committee it is a continuing scandal that Britain, the only country in the Western world self-sufficient in energy, should price its energy sales to large energy users at higher rates than those paid by its Continental and American competitors.
Last year the Government made some concessions after the NEDC discussions and this year they have added a little more. However, when we recall the number of major industries whose fortunes depend crucially on the cost of their energy supplies—that includes large sections of the chemical industry, the paper industry, aluminium smelters and others—the sums announced are small.
For presentational purposes, the Chancellor in his Budget speech decided that it was better to present the cost of his package at £250 million, over a two-year period—last year as well as this. This avoided the embarrassment of revealing just how little was provided in the 1982 Budget. I was interested to read the comments of the Chemical Industries Association, and specifically of its deputy director, Dr. Peter Kaudle. He said that the paucity of the Chancellor's package on energy cost was shown when one considered that he needed to add last year's claimed saving of £170 million to that of this year to arrive at the figure of £250 million.
Thus there was a package of £80 million to assist heavy users of energy in this year's Budget. This is not a minor point. The Committee will remember the recent annual report on last year by ICI. That showed that it had certainly not recovered from the enormous setback when, for the first time in the history of that enterprise, it went into deficit in the previous year.
The only other package of any size designed to assist was related to the construction industry. Few industries need more assistance than the construction and building industries. Again, on this the Chancellor was misleading when he told the House during his Budget speech:
our new public spending plans provide work for the construction industry in 1982–83 worth about £10¼ billion—an increase of 14 per cent."—[Official Report, 9 March 1982; Vol. 19, c. 750.]
That was misleading because, as the Chancellor well knew, the year 1981–82 saw a disastrous fall of no less than 11 per cent. in that industry, as compared with 1980–81. Anyone who thinks that he can draw comfort from the difference between an 11 per cent. fall and a proposed 14 per cent. increase should be reminded that the 1982–83 figures are in cash terms and make no allowance for

inflation. In other words, the Chancellor was announcing, in his rather curious way, a substantial fall on the depressed output of 1980–81.
That apart, the construction package was minor. As Mr. Owen Luder, the president of the Royal Institute of British Architects, said:
The Chancellor has made a series of small gestures which at the very most would generate 10,000 jobs.
That from an industry that now has some 400,000 unemployed.
Therefore, it is not through these and other minor aids to industry that any noticeable effects on output can be anticipated. The national insurance surcharge is the only measure that can be expected to have any noticeable impact. We shall see in a moment just how much impact that is likely to be.
The importance of the national insurance surcharge is that it relates directly to one of the most important problems of British industry, its loss of competitiveness. At this point, I can anticipate Conservative Members wanting to rise to their feet with the usual question why the Labour Government introduced the national insurance surcharge in 1976. The answer is that at the time of its original announcement, and, more relevantly, at the time of its introduction in April 1977 and its further increase in October 1978–2 per cent. to begin with and 3½ per cent. later—British industry was, in international terms, more competitive than it had been for at least a decade before.
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I checked the exchange rate of the pound against the basket of currencies on the appropriate date. Taking 1975 as 100, when the national insurance surcharge was introduced in April 1977, the index stood at 80·7. When it was increased from the original 2 per cent. to 3½ per cent. in October 1978, the pound stood, against the basket of currencies, at 80.2 per cent.

Mr. Richard Needham: Will the right hon. Gentleman accept that the national insurance surcharge is a tax on jobs? Does he accept that when he and his Government introduced it unemployment was rising, not falling?

Mr. Shore: I do not deny that it is a tax on jobs. The point that I am making, which is a fair one, is that when we judge the impact of a tax it is sensible to look at the overall effect of competitiveness, because that is what it is all about. There are different ways of raising tax. If we are using a tax—which I agree is a tax on jobs, and increases costs—at a time when the exchange rate is, by all historical standards, highly competitive, we can hope to do it with far less damage to our trade position than we would in other circumstances. It may have other adverse effects.

The Chief Secretary to the Treasury (Mr. Leon Brittan): Does the right hon. Gentleman agree that, first, the level of the pound is not the only test of competitiveness? Secondly, does he agree that apart from that, whatever the comparative merits of the situation now or then may be, and whatever the position in 1977 may have been, unemployment was rising then—although it fell later—and, other things being equal, the effect of the tax that the right hon. Gentleman's Government introduced was to be a tax on jobs? What was the point of it?

Mr. Shore: The increase in unemployment had broadly stabilised before the introduction of the tax. I remember this well. Unemployment rose rapidly in 1975 and the first part of 1976. I feared greatly that unemployment would rise further in 1977 but it did not. For whatever reasons the Committee may, in retrospect, wish to deduce, unemployment was on a falling trend at the time of the general election.

Mr. Chris Patten: rose——

Mr. Shore: I do not think that we need a debate. I am trying to make what I hope is a common-sense point. It seems to be difficult to get a few simple points across.

Mr. Patten: rose——

Mr. Shore: I am trying to answer the point made by the Chief Secretary. I had begun to do so, and I was going on to make a further point, which is highly relevant. The right hon. and learned Gentleman correctly pointed out that there were other factors that influenced cost. Therefore, we have to look at their totality. I agree with that, but there are two additional points, which I hope will reinforce my central point.
Against the basket of currencies at the date when the national insurance surcharge was introduced, taking 1975 as 100, the pound was at about 80 both in the spring of 1976 and at the time that the further increase of national insurance took place in 1978. When I urged the Chancellor a year ago to cut the national insurance surcharge, the pound stood against the basket of currencies at 99·2—in other words, at a level 25 per cent. higher than it was when the surcharge was introduced, and, indeed, about 25 per cent. higher than it was when it was increased.
Today, although the pound has eased against the basket of currencies, it is well above the level—12 per cent. or so—that obtained in 1977 and 1978. The comparison of the pound against the basket of currencies is not the full measure of the loss of competitiveness in British industry during recent years. As we all know, the pound, particularly in the past three years, has reflected both the high interest rate resulting from the Government's monetarist policies and the fact that Britain has moved into surplus as an oil producer. The pound has gone higher than it might otherwise have done if it was simply reflecting international perceptions of our real competitiveness.
If one takes 1975 as 100, the relative unit labour costs and international competitiveness of the United Kingdom has moved from just on 90, when the surcharge was introduced in April 1977, to 96 when it was increased in October 1978, to no less than 140 when I urged the Chancellor to cut the national insurance surcharge last year. As the House well knows, our competitiveness on the same index today stands at approximately 130—a 30 per cent. loss. That is the appalling measure of the loss of competitiveness.

Mr. Dennis Skinner: Another way of illustrating my right hon. Friend's point about the relationship between the basket of currencies then, the state of the pound now and competitiveness is what has happened as a result of the exchange rates across the whole range of currencies now. There have been bankruptcies and liquidations on a massive scale in the last two or three years of the Tory Government. About 8,600 bankruptcies and liquidations occurred last year. That is a direct result of our uncompetitiveness and bears out my right hon. Friend's point admirably.

Mr. Shore: My hon. Friend the Member for Bolsover (Mr. Skinner) is absolutely right. He anticipates my acknowledgement of that by only a single sentence. I was about to make one or two additional points to those that have been so properly made.
The loss of competitiveness is the main reason for the disaster that has struck British industry and the British economy during the past three years. The measure of that is the fact that no fewer than 20,000 firms have gone into liquidation since May 1979. Our manufacturing industry is still about 20 per cent. below the output levels reached in the summer of 1979. Our gross domestic product is about 6 per cent. below what it was when the Government took office, and that is now almost exactly three years ago.

Mr. Brittan: Before the right hon. Member for Stepney and Poplar (Mr. Shore) proceeds, will he answer my question? Even if the right hon. Gentleman is right in saying that the position was so much better in 1977, what was the point in introducing in 1977, and subsequently nearly doubling, a tax which would have the effect of increasing industrial costs and thereby reducing competitiveness?

Mr. Shore: Two things were happening at the same time. First, there was the usual problem of the need for an increase in revenues. The second problem was to do that in a way that did not affect the competitiveness of British industry. That competitiveness was increasing because the pound was floating and floating down. Many hon. Members complained about that at the time.

Mr. Brittan: rose——

Mr. Shore: No, I am sorry, I will not give way.
The right hon. and learned Gentleman should be a little more modest about himself and his contribution. The only point of my debating what happened in 1976 is to squeeze what juice there is from the past which would be helpful in understanding the present. I am trying to explain to the Committee why I think that it is important, given what has happened to the exchange rate and to competitiveness in British industry, that we should do something positive about one measure which can operate directly upon it.
The right hon. and learned Gentleman seeks constantly to put the arguments aside and invite me to look upon what happened five years ago in very different circumstances. I am prepared to do that only to the point that is relevant. In his smug arrogance he must not think that what he has to say is of great concern to me or that I am worried about his popping up and down at the Dispatch Box, because I am not.
I want to go on to say something more directly to the Chief Secretary. As I have just given the appalling summary facts of the situation in Britain, I expect him to tell us how splendidly we are doing. Of course, he will find some statistical evidence which will give him—but not the sceptical House and industry—some cause for hope and comfort.
I understand that the Chief Secretary reads Mr. Sam Brittan, although he tells us that he does not always agree with him. I thought that Mr. Sam Brittan said all that needs to be said about the Chief Secretary's continued raiding of statistics to support his somewhat unconvincing optimism. Yesterday, he summed up the situation as follows:
The economy has fallen off Mount Everest and climbed up Box Hill.


That is not had, is it? It saves us an awful lot of trouble going over the Chief Secretary's carefully selected indicators and tortured figures.
Far from torturing figures and selecting evidence, I thought that I would let the Committee know the latest state of play as the CBI sees it. The Press Association tape says:
In stark contrast to the optimism from the Government about an economic recovery the CBI says in its survey published today: 'There is still no evidence of any noticeable recovery in activity being under way. Demand is stagnant and nine out of ten firms are short of orders. Looking ahead, only a very slight increase in orders and output in the next four months seems likely.'
The national insurance surcharge reduction at least addresses directly the problem of competitiveness. A cut from 3·5 per cent. to 2·5 per cent. is far from impressive. Its effects are further weakened by excluding the whole public sector from the benefit of the reduction. What appears on the face of it to be a reduction of £1,000 million in national insurance surcharge payments in 1982–83 is in part illusory since public sector employers are forced to forgo other forms of Government assistance, equivalent to about £360 million this year. Therefore, we are talking of the sum of £640 million. That will have inevitably only a minor effect on trade competitiveness, on the cost of living, on job creation and even on assisting the appallingly low level of profitability from which the whole of British industry is suffering.
As the House will note, our amendment proposes to substitute in clause 128(1) the figure of 1·5 per cent. for the proposed 2·5 per cent. That would mean a reduction of two percentage points—more than half of the national insurance surcharge. We did not follow through the amendment as the Government have done with their proposed change in subsection (2) in order to give the full year's benefit of what we proposed as from 2 August. Obviously, if the Government were, by some strange chance, to accept our major amendment, we should have no difficulty in accepting an appropriate Treasury amendment to subsection (2).
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In proposing a 2 per cent. cut in national insurance surcharge, we would have no intention whatever of seeking a discriminatory clawback from the public sector. We are talking about a genuine reduction of about £2,000 million this year and of roughly £2,400 million in 1983–84.
I asked the Chancellor of the Exchequer for an estimate of the effect of his proposed cuts in the national insurance surcharge, but my request was turned down for the usual reasons. However, using the Treasury model, we can give a broadly accurate estimate of the effects not only of the Government's proposals but, more relevantly, of our own. They are worth while. We should gain 2½ per cent. in trade competitiveness, reduce the cost of living index by about 0·75 per cent., create 50,000 new jobs in two years, assist profit margins in public and private industry and, after the first year, place a burden on the PSBR not of £2,000 million but of just over £1,000 million.
To the extent that the Chief Secretary is disciplined by his own worries about the size of the PSBR, I think that his experience in the last two years must surely have taught him that it is unwise to invest too heavily in that particular indicator. In the first full year the Government foresaw a PSBR of about £8½billion and ended up with £13½ billion. Last year they estimated a PSBR of about £10½

billion—that was what the Chancellor told us in his Budget speech—and within four weeks it was already down to about £8½ billion.
Why figures have to be revised so dramatically in so short a time I do not know, but, taking the two years together, surely they give no confidence whatever for using the PSBR as one of the two major regulators or measures of the economy. We have to contrast them with the real world of numbers of people out of work, the amount of investment and the rate of inflation. I was about to mention the size of the balance of payments—exports and imports—but that is still rather concealed by the inability to get up-to-date statistics. When there are those real indicators, why on earth the Government should pay so much obeisance to indicators of proved lack of reliability I do not know.
If the cost of what we are proposing is an additional £1,000 million on the PSBR, I cannot see why the Chief Secretary should have any objection whatever, because it is well within his margins of error of the last two years.
I do not wish to over-estimate or over-stress the importance of the national insurance surcharge. What we have proposed is undoubtedly worth doing. We have the support of the CBI, which also calls for a 2 per cent. cut in the national insurance surcharge, as well as several other measures to assist our terribly depressed industry.
At this point I ask the Chief Secretary to clarify the Government's thinking on the point to which I alluded a short time ago. Why have the Government decided to claw back the benefit of the national insurance cut from the public sector? I can accept that central Government and local government costs do not enter directly into exports and into trade—they have an indirect effect of course—but it is at least plausible for the Government to argue that the trading sector of British industry should have a priority in a national insurance surcharge reduction.
What I cannot understand is why the nationalised industries—many of which are in a trading situation, and many of which are earning money in direct exports or import savings—should be denied this particular benefit. I am right, am I not, in saying that the nationalised industries are not to have the benefit of the cut in national insurance surcharge but are to have a corresponding adjustment of their external financing limits or whatever the regulatory mechanism may be?
What on earth is the justification for not assisting British Steel through a cut in the national insurance surcharge? What possible justification is there for not extending a national insurance surcharge cut to British Airways, which faces massive international competition on nearly all its operations? How on earth can the Government discriminate—if they have—against BNOC while the benefits of a national insurance surcharge reduction are available to its oil company competitors?
Unless the Government can give convincing reasons when the Chief Secretary replies, we must conclude that once again we have an example of ideological hostility to the publicly owned industries—the same hostility as is expressed in the privatisation schemes that the Government are still hell-bent on pursuing.
I turn to the economic problems to which the measure—the proposed reduction of national insurance surcharge—should relate. I have already said that we have suffered a major loss of competitiveness of no less than.50 per cent. We have, moreover, just over 3 million registered unemployed. The outlook for the economy is for


only the most modest upturn, and even that is seriously in doubt. Against that background, the Government's proposals—their £640 million cut, given only to private sector firms—are almost irrelevant. National insurance surcharge plays its part in competitiveness but there are, as I have said and debated with the Chief Secretary, many other factors also involved.
Last year, the Government placed their main emphasis on reducing interest rates. The only good news in the Chancellor's 1981 Budget was the reduction of minimum lending rate from 14 per cent. to 12 per cent. That was abandoned a few months later. Today we still have MLR—or rather its equivalent—at 13 per cent., and we know that every 1 per cent. increase in interest rate is equivalent, in cost terms, to about £350 million to £400 million a year for British firms.
The Government still remain imprisoned by their own monetarist doctrines. Although sterling M3 has ceased to be the single guiding light, the doctrine of monetary target, supported by unstated exchange rate target, is still at the heart of their economic policy, and it is that which has prevented what is essential for the revival of our economy—a cut in interest rate and the achievement of a much more realistic and competitive exchange rate for the pound. Yet those are only the start of a policy for revival.
We need interest rate and exchange rate policies which will serve the interests of our industry, but we shall need much more than that if we are to escape from the disasters of the last three years. We shall need active intervention on the supply side of the British economy. We shall need the reintroduction of exchange controls. We shall need a far more active policy to encourage British exports and import replacement.
We recommend to the Committee our amendment on the national insurance surcharge, in the full knowledge that it is only a first and minor step in the large task of reconstruction of the British economy that has still to be undertaken.

Mr. Kenneth Lewis: The right hon. Member for Stepney and Poplar (Mr. Shore) said that last year he had pressed the Government to reduce the national insurance surcharge. Conservative Members also did that and we like to believe that we had some influence with the Government. We were pleased when they reduced the surcharge by one point. It just goes to show the right hon. Gentleman that this is a Government of good works. Although they may come to those good works slowly, they get there gradually with a little prodding from time to time by Conservative Members and perhaps a little help from others among the Opposition.
There is no doubt that the national insurance surcharge is a tax on labour and therefore a tax on employment. It is a bad tax, but the right hon. Gentleman and his hon. Friends cannot speak today other than with their tongues in their cheeks, because they introduced the tax and compounded the problem by increasing it. Conservative Members are well aware that when any Government bring in a new tax that tax can become bedded down. When that tax is increased, it becomes bedded down even more and it is then much more difficult for any Government to reduce or to remove it. Despite that, I wish that in the Budget the Government had removed the surcharge tax——

Mr. Needham: They should have done.

Mr. Lewis: My hon. Friend says that they should have done. I can say only that the Government did not then know that they had saved £2 billion on the PSBR. If they had known that, perhaps they would have removed the tax. Their arithmetic was not correct, although it is perhaps better for my right hon. and learned Friend the Chancellor's arithmetic on the PSBR to be right after he introduces his Budget than to be right before, because at least he will have the benefit of more money in hand than he originally believed he would have.

Mr. Needham: Can my hon. Friend tell the Committee what he means by "right"? My right hon. and learned Friend the Chancellor got his arithmetic wrong, although perhaps in the right way.

Mr. Lewis: I presume that my right hon. and learned Friend the Chancellor will be glad to have found £2 billion that he did not expect to have. Of course, perhaps Treasury officials knew about it before the Budget.
The tax is especially bad at this time. If it is not reduced during this Parliament, assuming and hoping that we can bring down unemployment, we could arrive at a position where a future Government would actually be adding to the tax in order to take inflation out of the system again, which is why it was originally introduced. We would then be adding to a tax that was already too high. Our objective must be to reduce the national insurance tax to a proper level and to have no surcharge, so that we are not faced with a surcharge that has built into it an increase which was meant to be temporary, which should have been temporary, and, therefore, which we hope will be required only for another two years, or even less.
Anyone who runs a business knows that when one calculates a salary one must add the charge for national insurance. As wages rise with inflation each year, the national insurance charge increases. Not only must employers consider whether they can take on extra labour, but in recent years this surcharge has created a situation in which many businesses, especially small businesses, have laid off workers. The increase in the national insurance charge, including the surcharge, for the entire work force has meant—some business men have calculated it deliberately—that a small business man can get rid of two or three workers and by saving the wages of those workers pay the national insurance charges for the rest of his employees.
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That practice is bad and still goes on in many parts of industry. Although, therefore, it was a considerable help for my right hon. and learned Friend to reduce the surcharge by his Budget, I hope that it will be possible in the next Budget for the Treasury to consider removing the surcharge. If my right hon. and learned Friend the Chief Secretary says that that will not be possible, he should examine how this national insurance tax—for that is what it is—is organised. At the moment, the employer must pay a flat amount on his entire wage bill. Would the Treasury consider arranging for the tax to be based, as income tax, on a lower level, a middle level and a higher level, or at least on two levels, so that there is perhaps a 6 per cent. and a 12 per cent. rate? The 6 per cent. rate would be charged on a salary of up to £50 a week, or half the national average pay, and the 12 per cent. rate on a salary beyond that.
That would mean that the employer would pay half the national insurance rate for lower-paid workers, which includes the young. It would encourage employers to employ young people. As we have heard from time to time in the House, some youngsters are paid too much and we do not employ enough of them because their wages have been pushed up by wages councils. They are being priced out of jobs. Young people are finding it difficult to obtain jobs. Employers are deterred from taking on new people in skilled jobs or in apprenticeships because they look at the salary that they must pay and then the national insurance rate, including the surcharge.
If the Treasury cannot remove the tax altogether, perhaps it will consider remodelling it. I should be somewhat dismayed if the surcharge were to continue into the next Parliament, because it might become permanent. Certainly if there is a change of Government, which I do not anticipate, the Labour Party will do exactly what it did on the last occasion, which was to increase the surcharge to the same level as when the previous Labour Government left office. We should not risk that possibility, and we should get rid of the tax during this Parliament. If we do not get rid of it, we should at least recast it so that it will help employers to take on labour.
Unemployment is increasing. It will not decrease, other than marginally, for the next 12 or 18 months. It is important that we provide a stimulant for new jobs. This is a payroll tax. It is a bad tax. I hope that my right hon. and learned Friend will see that it is destroyed before the end of this Parliament.

Mr. Richard Wainwright: I am happy to follow most of the trenchant speech of the hon. Member for Rutland and Stamford (Mr. Lewis) against the entire national insurance surcharge. In spite of its desiccated title, this tax is surely a highly suitable subject for debate on the Floor of the House. Any tax that raises about £3½ billion in a full year by taxing jobs should be thoroughly thrashed out when there are more than 3 million unemployed and some estimable forecasters are predicting 4 million unemployed in a few years' time.
I speak to amendments Nos. 24 and 25 in the names of my right hon. and hon. Friends in the Liberal-Social Democratic Party alliance. The amendments are associated with our amendment to schedule 17 that is to be discussed in Standing Committee. Together they provide not only for the abolition of the national insurance surcharge but for the repeal of the National Insurance Surcharge Act. That is an important part of our case. We are anxious to extract what in technical jargon is called the utmost announcement effect of our proposals.
Employers who are considering taking on apprentices and other workers will then know that the tax is to be ended and that the statute enabling it to be levied is to be repealed. Therefore, their decisions will not be made a nonsense by the Government in a year or two again putting up the surcharge, which is what so often happens in our Box and Cox, Punch and Judy system of Government. However, I must make it clear that in repealing the Act and abolishing the tax there will need to be some temporary clawback from the public sector's tax reduction.
There is widespread distaste for the tax in most parts of the House. The hon. Member for Rutland and Stamford is a witness to that. On 8 December last year, during our debate on the White Paper on public expenditure, the right hon. Member for Chelmsford (Mr. St. John-Stevas) said:

The best thing would be to reduce—or, better still, abolish—the national insurance surcharge".—[Official Report, 8 December 1981; Vol. 14, c. 780.]
Earlier, on 28 October 1981, during a debate on the Government's economic policies, the hon. Member for Staffordshire, South-West (Mr. Cormack) said:
to phase out the national insurance surcharge would not amount to a craven volte face by the Government, any more than it would produce paradise and plenty tomorrow."—[Official Report, 28 October 1981; Vol. 10, c. 926.]
It is not difficult to see why there is this widespread distaste for the tax. It is undoubtedly an ally of increasing unemployment. The right hon. Member for Stepney and Poplar (Mr. Shore) gave some expected effects of the reduction that he proposes as shown by the Treasury model. The CBI has estimated the number of jobs that are likely to be created in due course—although not immediately because there is bound to be a time lag—if its proposals for a further 2½ per cent. cut are adopted. It estimates that if NIS is abolished from next year the benefit will be an extra 200,000 jobs after approximately two years. Although we all know that unemployment is slow to respond to any fiscal change, and does so only in relatively small measure, 200,000 jobs are surely a boon not to be ignored.
It is important to bear in mind the cost to the Revenue. For that reason we accompany our proposal for abolition with a temporary clawback from public sector employers. The net cost to the Revenue of the Liberal-SDP proposal for abolition, with temporary retention of clawback, is similar to the cost of the Labour Party proposal for a reduction and at the same time dispensing with clawback. It is a nice question which of those two courses is the more helpful at present.
I accept that clawback is discriminatory. I should not want to see it going on for many years. However, we maintain that the psychological effect of announcing the repeal of the surcharge Act would be well worth the suffering and disadvantages of clawback for, say, two or three years, in order to keep the initial cost within bounds.
We estimate that if clawback of the benefit of abolition continues during the next 12 months from the nationalised industries and from central and local government, the cost of abolition in 1983–84 would be about £2,240 million and in a full year £2,676 million. That is certainly within the borrowing requirement calculations that we put forward when Budget judgment was being discussed. We believe that could well be carried, especially in the light of more recent revelations of a much smaller public sector borrowing requirement than the Chancellor of the Exchequer was using in his pre-Budget arguments.
We do not regard clawback as a desirable continuing feature. To claw back a tax relief from the nationalised sector that has been granted to the rest of industry is an act of hostility if it is protracted. For example, in the Government's proposals the external financing limits for nationalised industries will be reduced by about £92 million in respect of clawback. For that to continue for a substantial time would be a most undesirable precedent. Nationalised industries would be entitled to ask what would happen if corporation tax were reduced at some time in the future. Would we be told that nationalised industries must not expect any benefit from that? BNOC and other profit-making nationalised industries might feel that that benefit would be clawed back from them. We therefore regard clawback as a strictly temporary measure, simply to keep the cost within bounds.
We have had cited in the debate support from the CBI for a substantial reduction leading to abolition, but I should like to refer also to the attitude of the TUC. The right hon. Member for Stepney and Poplar did not introduce that aspect. The attitude of the TUC is, to Liberals, a matter for regret. In its economic review for 1982 it accepts that the national insurance surcharge is not a good tax and that it should be reduced or abolished, but it firmly prefers a reduction in the rate of VAT from 15 per cent. to 12·5 per cent. It is, therefore, only fair that the Committee should be aware of an alternative tax reduction proposal that comes from an important if not wholly representative source.
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I take issue with the TUC's judgment. Although a reduction in VAT at a similar cost to the Revenue would help to reduce the general level of prices, it would do very little immediately to increase the number of jobs. I would have hoped that the TUC would have felt a greater responsibility towards the unemployed, even though temporarily out of union membership, than going straight away for a reduction that would largely be to the benefit of the consumer.
Our proposal is that this surcharge tax should be abolished and that clawback should remain from the nationalised industries for one year, and perhaps for two years from central and local government. We believe that the surcharge Act should be repealed so that employers who may be considering the possibility of taking on additional people, especially young people, would know that the threat of being taxed for providing jobs would have wholly disappeared.

Mr. Needham: I agree with my hon. Friend the Member for Rutland and Stamford (Mr. Lewis). I do not think that the Opposition have many credentials for proposing the amendment, as they originally introduced the surcharge.
One wonders why it was called the national insurance surcharge. I believe I am right in saying that it does not go into the national insurance fund, but rather into the Consolidated Fund. Why on earth call it a national insurance surcharge if it in no way ends up to the benefit of the recipients of that fund? Perhaps at some stage the Opposition will give us an answer.
I take the point made by the right hon. Member for Stepney and Poplar (Mr. Shore) that unemployment may or may not have been rising in 1977. At any rate, it levelled off and the pound at that time was more competitive. But surely the right hon. Gentleman would agree that it does not alter the fact that as a tax on jobs it would not benefit employment. North Sea oil was not that far away on the horizon in 1977, and surely this was a tax that sooner or later would affect employment and competitiveness.
I feel I have some right to bring this matter to the attention of the Committee, as I am one of those who must pay national insurance surcharge in order to retain the levels of employment in the companies that I help to run.
I am absolutely certain that my right hon. and learned Friend had no intimation that the outturn of the PSBR would be £2 billion less, although the CBI felt that it might be considerably less than the £10½ billion estimate. But given that my right hon. and learned Friend had had

foresight, would he have been prepared to reduce the national insurance surcharge even further than he did? He may well say that that was last year and that one must look at the PSBR for this year, but having got it wrong in the right way perhaps he could have taken a risk in that direction.
I must be honest with my right hon. and learned Friend. There are those of us in industry—I am afraid to say that the feeling is widespread—who have some doubts whether members of the Treasury Front Bench have a real understanding of the problems of industry.
I congratulate my hon. Friend the Member for Grantham (Mr. Hogg) on his promotion to behind the Front Bench. No doubt it will not be long before he hops another step forward, and deservedly so. However, my hon. Friend is on the way to becoming a learned gentleman rather than an industrial gentleman. One of the concerns among people who have spent their lives in industry is whether the Government have a feel for the needs of the manufacturing base, particularly compared with our major competitors such as Japan, Germany and France who seem to be able to work together towards an industrial strategy rather better than us.

Mr. Chris Patten: Will my hon. Friend say something about the industrial experience of members of the Opposition Front Bench?

Mr. Needham: I cannot say much about that, but they look like men who have spent many years on the factory floor. No doubt they will have an opportunity later to explain their industrial experience.

Mr. Robert Sheldon: I suppose I ought to respond. Admittedly, it was a number of years ago, but not only was I an engineer but for a few years I was also a machine shop manager.

Mr. Needham: I am grateful to the right hon. Gentleman for answering my hon. Friend's point. That does not alter the fact that the right hon. Gentleman should have opposed the introduction of the national insurance surcharge in 1977.
I come back to what I was saying about industrialists, some of them now former industrialists, who backed the Government before the general election. I am afraid that some of them must feel like so many of those Italian noblemen who were invited to dine with the Borgias. They eagerly looked forward to the sumptuous party, but not many of them were around the next day to say how wonderful it had all been.

Mr. Douglas Hogg: That is not actually very funny.

Mr. Needham: I am grateful to my hon. Friend for his sedentary intervention. The lack of novelty in what I say does not alter the fact that the Treasury Front Bench should not confuse a summer vacation job in the meat department of Harrods between law exams, or a quick trip around a factory in their constituencies, with a basis for an understanding of industry.
What is happening to those who run our manufacturing base? They are beset by a lack of competitiveness, which has not only been the fault of managers paying their workers too much. Manufacturing industry is constantly reviled for overpaying its workers. I shall not go into what the Government have done with their pay policy, but we are reviled for overpaying our workers. If that is the case,


why are British industrial wages among the lowest in the industrial world? Perhaps it is because the rise in the value of the pound has had something to do with competitiveness.
The value of the pound now compared with our inflation rate and those of our competitors, as my right hon. and learned Friend well knows, has massively undermined the competitive base of British industry. It has had two other consequences. Good companies as well as bad have gone to the wall. We should not forget that. Let me give my right hon. and learned Friend a personal example. One of the companies in which I am involved manufactured attractive trays for the German market. The hon. Member for Workington (Mr. Campbell-Savours) was involved in the same sort of industry——

Mr. Jack Straw: Knick-knacks.

Mr. Needham: The hon. Member for Blackburn (Mr. Straw) may think it amusing, but that industry created jobs, obtained orders and got exports. They were beautiful knick-knacks that were well received in the German market. However, as a result of the change in the exchange rate, which was the equivalent of 20 per cent. increase, and the inflation rate in Britain, we lost the orders. We were no longer competitive. Six months ago, when the pound had depreciated to some extent, we received inquiries from the German customer once more. However, we were no longer in the tray business. Those whom we had employed were unemployed. It is impossible simply to turn on a tap that has been permanently turned off.
As my right hon. and learned Friend the Chief Secretary knows, the result has been an undermining of the economy's capacity for reflation. The companies no longer exist. For example, Lansing Bagnall started the recession with about 200 subcontractors. I believe that 27 of them have now gone out of business. Some of them were general engineering companies that could be replaced, but others were specialist companies that made particular parts for Lansing Bagnall. They cannot be replaced. Last year, Lansing Bagnall's output was 33 per cent. of that in 1979. At the beginning of this year there was a slight upturn. My right hon. and learned Friend may say that it was more than that, but in Lansing Bagnall's case it was slight. Its order book increased from 33 per cent. to 40 per cent. and it immediately started to run into production difficulties because of a lack of available capacity among its suppliers. British industry has slimmed down and returned to some sort of profitability on a lower base. However, any chance of a major increase in output will run up against immediate constraints.
The question of productivity is crucial to this debate. We are told that productivity in Britain, or lack of productivity, has been caused by overmanning. Of course there is some truth in that, but if our wage rates are half those of our competitors we can live with some overmanning. It is important to ask what effect overmanning has on productivity and how much demarcation disputes, shoddy work, strikes and poor management affect productivity. Lectures on overmanning, demarcation disputes, shoddy work, failure to deliver on time, strikes, and poor management are trotted out year after year and month after month by those who, by and large, have no experience of industry.
We are now told that a bracing new climate has led to an increase in productivity that has not been seen in Britain

for 100 years. I am prepared to accept that there has been some change in the attitude of British industry, although I do not know how long it will last. I accept that dead wood has been removed. However, it should be remembered that the companies that remain are the leaner, fitter and more successfull companies whose increases in productivity are anyway probably higher than the national average. Productivity is affected not only by overmanning, demarcation and all the other hackneyed phrases, but by plant utilisation, the building up of stocks, proper marketing and greater confidence in the fact that regular orders will flow. Above all, higher profits are required.
The profit base is being restored but is still pitifully low and, compared with our competitors, is virtually non-existent. When a company starts to lose profitability, its first step is to cut areas that are crucial to its future. Training goes straight out of the window. As it is hot needed immediately, nothing is done about it. Investment is cut and the plant is run for longer. Research and development is cut because it cannot be afforded. Recruitment stops. A company will concentrate less on marketing and packaging and will try to cut corners. All those elements are more important to increasing productivity and the success of a company than the lectures that we are constantly given on wage rates, overmanning and so on.
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How can my right hon. and learned Friend the Chief Secretary help to reduce industry's costs? The CBI rightly said that we must reduce industrial costs and help demand within industry. That cannot be done too quickly because, as my right hon. and learned Friend might say, inflation would return, with all the other problems involved. The abolition of the national insurance surcharge is the most sensible and effective answer. In the outturn of the public sector borrowing requirement we saw that that could have been done. It is all very well for my right hon. and learned Friend and his colleagues constantly to cajole and sometimes bully industry. It is always being told, "Yoke a risk, be an entrepreneur, have a go, put your money where your mouth is—although you have borrowed up to the hilt". However, although my Government are meant to represent private industry, their response to taking a risk is, "Oh, if it is £500 million more on the PSBR, how will it affect the City, what will the gnomes of Zurich do, what will happen to the interest rate? Oh no, we cannot take a risk with £500 million out of £115 billion".
Those of us in private industry are told to get out into the market. We are told, "Do not pay your men any more, but get on with the job". The idea of this Government taking a risk can be likened more to Sir Charles Villiers' last year at British Steel than to most entrepreneurs in Britain. I hope that we shall hear less oratory, cajoling and lecturing and receive a little more assistance. It would be very nice if that could be done by abolishing the national insurance surcharge today.

Mr. David Winnick: I shall be interested to see whether the hon. Member for Chippenham (Mr. Needham) joins us in the Lobby at the end of the debate. He would be very welcome. There is always much to be said for combining one's words—which we approve of—with one's vote. However, we shall see.

Mr. Skinner: He will back Maggie.

Mr. Winnick: My hon. Friend is somewhat cynical, but I shall let that pass.

Mr. Skinner: I bet that I am right.

Mr. Winnick: Although the Falkland Islands conflict dominates politics at the moment, the issues under debate will be with us for a long time. Given the state of British industry, we must all be concerned about any assistance that can be given to revitalise industry. Before the war the then Governor of the Bank of England, Montagu Norman—whose name will be familiar to many hon. Members—gave evidence to an inquiry and, after admitting that unemployment was deliberate policy in certain economic circumstances, refused to accept that there was anything that the Bank could or should do to safeguard workers in industry from the effects of such policies. This Government often give the same impression. They say that their policies are necessary and that it is too bad for the casualties of such policies, the unemployed. They say that there is nothing that they can or should, do.
Despite great pressure from both sides of industry and from the Opposition, Ministers have until now refused to accept the need to reduce the national insurance surcharge. I see from the press that at a meeting earlier this year—described as well-attended—of the Tory finance committee, the director general of the CBI said that industry was expecting a cut in the national insurance surcharge in the Budget. I very much doubt whether the cut that has taken place is one which the CBI will consider sufficient.
In another statement the CBI said that it would prefer the abolition of the surcharge and that, failing that, it would like a reduction to 1½ per cent. It is asking for the reduction proposed in the amendment moved by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore).
It is nice for the Labour Opposition to be in agreement with the CBI on occasions. I am sure that that joint approach from the CBI and the Labour Benches will have some impact on industry; it certainly ought to. Understandably, hon. Members have referred, as a debating point, to the fact that a Labour Government introduced the surcharge and increased it. I was not in the House at the time, but, in fairness, I must say that had I been here I should have voted with the Labour Government. I shall not pretend otherwise, but I find it difficult to believe that my colleagues were full of enthusiasm at the time for the national insurance surcharge.
However, the situation was different then and I do not believe that, if unemployment had been anywhere near the present level and if industry had suffered in the way that it has undoubtedly suffered in the past three years, Labour Members would have followed Ministers into the Lobby to introduce such a surcharge. One has to accept that present circumstances are quite different.
The hon. Member for Chippenham was right when he spoke about the devastating effect of the exchange rate. The level of the exchange rate in the past two to three years has undoubtedly done far more damage to industry than the national insurance surcharge. The exchange rate has been responsible for many of the job losses that Britain has suffered recently.

Mr. Skinner: Not all of them.

Mr. Winnick: By no means, but the exchange rate has undoubtedly had a very negative effect and been responsible for a great deal of unemployment.
Manufacturing industry pays nearly two-fifths of the surcharge. In a reply given on the Floor of the House in February the Secretary of State for Industry said what we all knew—that there had been a drop of about 16 per cent. in manufacturing output since the Government took office. I well remember the Government's first Budget. The then Secretary of State for Industry—now the Secretary of State for Education and Science—spoke of "galvanising industry". I well remember the word "galvanising". We have not seen much galvanising of industry, but we have seen much undermining of British industry and a resulting loss of jobs for our constituents.
It is understandable that the effects of the exchange rate, the national insurance surcharge, and so on, have had the greatest impact on manufacturing industry. In a reply yesterday about unemployment, the Secretary of State for Employment said that since the Government took office there had been an increase in unemployment of just under 118 per cent. That is disturbing enough, but in the West Midlands—in many respects the heartland of the manufacturing and engineering industries—the increase in unemployment has far exceeded 118 per cent. In my own travel-to-work area unemployment has risen by nearly 240 per cent. since May 1979. We find the same picture in other travel-to-work areas in the West Midlands. Unemployment has increased substantially and by more than the national average since the Government came to office.
We have to consider what can be done to increase the number of jobs. The hon. Member for Colne Valley (Mr. Wainwright) said that the TUC put more emphasis on reducing VAT than on a reduction of the national insurance surcharge. The TUC may or may not be right, but in the absence of a reduction in VAT a cut in the surcharge will undoubtedly help to create more jobs.
The present level of unemployment must be substantially reduced. I asked the Prime Minister about unemployment in my area and all that she had to say in a written answer was that she was concerned about the creation of soundly based jobs, but that that depended on
the ability of industry and commerce to meet more effectively the needs of consumers at home and abroad."—[Official Report, 4 May 1982; Vol. 23, c. 19.]
Those are mere platitudes and cliches which do not come to grips with the devastation and tragedy that have occurred in so many parts of the West Midlands in the past two or three years. A reduction in the national insurance surcharge would help industry to compete more effectively with overseas companies and would also assist the construction industry, which has also suffered so much from Government policies.
Many of us are appalled that the Budget and the Finance Bill accept as inevitable the present level of unemployment and the fact that it will remain at that level for some time. Indeed, the Budget accepts that unemployment will increase substantially in the next year. We wanted a different sort of Budget and Finance Bill. We wanted measures to achieve what the Opposition and the TUC have been pressing for—a degree of reflation, a substantial reduction in unemployment and an incentive to employers to take on labour. No one can say that the Bill will do anything to reduce unemployment substantially.

Mr. Skinner: It is not supposed to.

Mr. Winnick: My hon. Friend is right, and he has highlighted the basic weakness of the Bill and all the previous Finance Bills introduced by the Government.

Mr. Skinner: The reason why I said that the Budget is not supposed to reduce the numbers on that pile of human misery known as the dole queue is that the Government set out from the beginning, in 1979, to shift the balance away from those who work for a living and towards the boss class. They have succeeded in that aim by putting 3 million to 4 million people out of work. The Budget is a continuation of that policy. The Government want employers to fill the coffers of the Tory Party at the next general election, as they did last time. Indeed, the Tories hope to get even more this time. That has been the aim of the policy in all their Budgets.

Mr. Winnick: No one can deny that the creation of unemployment has been deliberate Government policy. The hon. Member for Bath (Mr. Patten) is amused by that, but surely he will not suggest that when the policies were put forward in 1979 and 1980 Ministers believed that they would reduce unemployment. They are not that stupid. They understood that the policies would increase unemployment. They argued that that was the only way to defeat inflation and to make industry more competitive. We strongly disagree.
It is easy for hon. Members to talk in the House about unemployment, but, as we have said before—it needs repeating and emphasising—we should not underestimate the anger and frustration that unemployment has caused in many places throughout the country. However much we may be concerned about unemployment, it is easier for us than for those who are directly affected. The misery and frustration of the unemployed are bad enough, but there is also the psychological damage, because they do not know for how long they will be unemployed. There are people of our own age group who understandably say to themselves "Will I ever be able to find another job?"
The Budget and the Finance Bill are to be condemned because they do not offer any way or hope of releasing our fellow citizens from the misery of unemployment. We have talked about the 1,800 Falkland Islanders. I should be the last person to condone the aggression that took place. Their rights are important, and that dispute has to be resolved, but what about the elementary rights and the human dignity of those on the dole queues? We should not forget them, but, unfortunately, the Budget and the Finance Bill offer no guide.
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I do not suggest, any more than my right hon. Friend the Member for Stepney and Poplar would suggest, that reducing the surcharge further, along the lines suggested in the amendment, will resolve the problems of unemployment. There is a need for a more competitive exchange rate, for selective import controls and for planning agreements. I know that we shall not carry many Conservative Members with us, but those are the types of measures that would substantially change the position in British industry.
I noticed that a recent article in The Guardian, written by a member of the Social Democratic Party, was very pessimistic about Labour's plans. What is interesting about that article is that, even on the most pessimistic assessment, Labour's plans for jobs would substantially reduce unemployment. The article argued that there would be disadvantages such as inflation and the rest of it——

Mr. D. N. Campbell-Savours: And an incomes policy.

Mr. Winnick: —although inflation has increased substantially under the present Government. The Government boast about the fall in inflation, but they have reduced it only to what it was when they came to office.

Mr. Skinner: Not quite.

Mr. Winnick: My hon. Friend says "Not quite" bat very nearly. That is nothing to boast about, and it has been achieved at the expense of so many of our fellow countrymen who are unable to find work and may not get work for a long time.
The Guardian article accepts, as most people will have to do, that Labour's plans for jobs, whether on an optimistic or pessimistic assessment, will do far more substantially to reduce unemployment than anything that we are likely to see from the Government. But we should take whatever assistance we possibly can. Although I mentioned the need for substantial measures, if reducing the surcharge further—the surcharge is undoubtedly a form of tax on jobs—will help to reduce unemployment and will provide more opportunities at least that is a move in the right direction. We shall support any measures that will reduce the present level of unemployment and allow people to earn their living, as the more prosperous do.
The Government will never be forgiven for bringing back mass unemployment—a form of curse which many believed would never return to our shores. The Finance Bill does nothing to undermine mass unemployment, but accepts that unemployment will increase more. For those reasons, the Bill is certain to be condemned.

Mr. Chris Patten: I welcome this opportunity to talk about the iniquitous national insurance surcharge. The debate has given us the opportunity to talk about some of the problems of British industry and to listen to the admirable bouncy speech about the entrepreneurial spirit delivered by my hon. Friend the Member for Chippenham (Mr. Needham).

Mr. Straw: It will be printed in Labour Weekly.

Mr. Patten: I am afraid that that is probably the only place where it will be reprinted, although it might be put in some of the Wiltshire papers which I am sure will want to carry copious extracts from it.
The debate also gives us the opportunity to touch upon one or two issues which go to the heart of some of the mole interesting and intellectual arguments about the Government's strategy. I think we can start on a note of agreement. We are all agreed that if we set on one side criteria such as ease of collection and certainty of collection, the national insurance surcharge is a rotten tax. I think that point is conceded by the right hon. Member for Stepney and Poplar (Mr. Shore) who was, of course, an adornment of the Government who introduced the surcharge.
I did not care much for that rather Jesuitical part of his speech in which the right hon. Gentleman tried to say that the national insurance surcharge was not a rotten tax when it was first introduced. At an earlier stage in his distiguished career, the right hon. Gentleman was director of the Labour Party research department. I am well acquainted with the type of speech that he made. I have had to write similar speeches myself in the past. It was the sort of speech where one tries to justify anything and


everything one's party has ever done. It is debating stuff for women's advisory committees, although not the more intelligent women's advisory committees. I should like to excise that remark.—[Interruption.] My hon. Friend the Member for Grantham (Mr. Hogg) says quite rightly that I am not referring to the women's advisory committee in my constituency. The right hon. Gentleman's speech would have been better served if he had not made those remarks.
It is also pleasant to hear the surcharge denounced by those who in an earlier alliance were party to the increase in the surcharge in 1978. One might say that the national insurance surcharge was one of the fruits of that alliance, although perhaps not one of the more attractive fruits.
I have looked through the Hansard reports of the early debates on the surcharge. It is interesting to note how perceptive were the comments of my right hon. and hon. Friends. If one examines the speeches in those debates, one finds a roll of honour of the Treasury Front Bench today. Some of the leading lights of the present Administration made admirably perceptive and trenchant speeches denouncing the surcharge on all the usual grounds. I do not want to trouble the Committee by quoting those speeches extensively.

Mr. Campbell-Savours: Please do.

Mr. Patten: That would not serve anyone's interests, and certainly not my own.
It is worth recalling the arguments we made in Opposition about the surcharge. The one thing we did not do, bearing in mind the unhappy history of commitments on the selective employment tax, was to pledge ourselves to abolish it. Apart from that, we made it clear that we were not wildly keen on the surcharge.
The most robust and comprehensive denunciation of the surcharge was the representation on the Budget made by the CBI in January last year. The CBI said that the surcharge lowered British competitiveness, worsening our balance of payments by, in effect, levying a tax on exports but not on imports. It pointed out that the national insurance surcharge raised prices because it was a labour cost. It said that the surcharge was a tax on jobs and therefore increased unemployment because employers would not take on new workers so that they would not have to pay the tax. The CBI said that the surcharge squeezed profits and therefore reduced investment. The CBI did not point out, as it could have done, that, because of the surcharge's effect on industry's cash flow, it obliged companies to go out and borrow money and therefore, at least in a sense, had an effect on interest rates.
The CBI concluded:
It would be difficult to devise a more damaging tax on business.
It went on to say that it was interesting how often temporary expedients, which were, if I may borrow a phrase from another debate, introduced in lieu of public expenditure cuts, turned into permanent features of our tax system. That point was admirably made by my hon. Friend the Member for Rutland and Stamford (Mr. Lewis) in his characteristically wise speech.
We were all pleased that the CBI's pleadings and arguments this year at least made some dents in the Treasury's armour. I welcome the step, the excessively cautious step, that the Government took in cutting the

national insurance surcharge in the Budget, but, in all fairness, one or two things should be said in the Government's favour. There was the extra ½ per cent. cut from August for one year on top of the 1 per cent. cut that also starts in August. That means that this year the national insurance surcharge will be cut by almost as large a figure as if we had made a cut of 1 per cent. over the whole 12 months.
The Government are entitled to point out the combined effect of national insurance contribution rates and the national insurance surcharge. For a couple of years they have shielded employers from increases in the national insurance contribution rates. The combined effect of the national insurance surcharge and the national insurance contribution has fallen in real terms. I suspect that it has also fallen in cash terms. Why, despite all that, were the Government not able to go further? They were not able to go further because of the PSBR, which was the restraint in the first place that obliged the former Chancellor of the Exchequer to introduce the surcharge.
As my hon. Friend the Member for Chippenham knows, I am not an unqualified supporter of the primacy of the PSBR in economic management. I believe that one or two other things, such as jobs, prices and output, are more important. I recognise that those who believe that the PSBR is the maypole of economic policy must have been delighted when they discovered a couple a weeks ago that last year the PSBR had been £2 billion less than they thought it would be a couple of months before. That must have come to them as the sort of shock that pools winners get—"East Surrey man wins £2 billion". We know the story.
We are also told that the good news—or bad news if one thinks that we should borrow more during a recession—will continue. Yesterday, Mr. Wilkinson, the economics correspondent of the Financial Times, reported:
The Treasury is still trying to find out why borrowing last year undershot the target by £2 billion representing almost a quarter of the £8·6 billion borrowed.
Although the full reasons for this remain obscure, officials are cautiously optimistic that a number of beneficial effects will carry through into this financial year.
Perhaps the cautious optimism about 1982–83 will turn out to be justified. I would not put too much money on that, because presumably the people who are forecasting the figures for 1982–83 are the people who forecast last year's figures. Therefore, perhaps that would not be an ideal bet.
Nevertheless, the Treasury may be right. I appreciate that the PSBR is conceivably one of the things that gives it cause for whistling at the moment, as well as the forecast for inflation and the first stirrings of industrial recovery. The inflation forecasts do look extremely encouraging. Large parts of British industry are potentially more competitive than they were. That may start to show through as output picks up a little, although not enough to make much of a dent in unemployment.
If we want output to pick up more, if we want to make a bigger dent in the deplorable unemployment figures, and if we want to demonstrate that we are on a different path from the one that we have trodden for the past decade or more, we need to do two other things. Recently, the Financial Times said that those two things were without precedent in British economic history. The first thing that we have to do is to——

Mr. Skinner: Resign.

Mr. Patten: I am grateful for the hon. Gentleman's urbane comment. Perhaps he would like to make a more serious intervention. Since I have been in the House, I have come to realise that the hon. Gentleman is an important part of the British constitution, like the ravens in the Tower of London. If he wants to intervene in my speech, I shall be happy to let him intervene intelligently.

Mr. Tim Eggar: That would be difficult.

Mr. Patten: I appreciate the difficulty.
If we are to get on to the more impressive path, the first thing that we need to do is to encourage a revival led by investment, although markets are depressed and there is little demand. The second thing that we need is a shift of real income from wages to profits without industrial turmoil.
As Professor Alan Budd said the other day, the first of those things is more difficult than we would like because the company sector is likely to be running a deficit of about £1 billion over the next year. Professor Budd said that that would lead to greater borrowing by companies. He was therefore cautious about the prospects for recovery. He said that the prospects for this year were delicately balanced, because recovery depends on stock building and further investment when consumer spending is as flat as it is and when companies are still borrowing heavily.
The second development relates to pay, to which I have referred. We do not believe that, as the threat of redundancy diminishes, people will try to make up for the real wage cuts that some of them, particularly in the private sector, have suffered since the end of 1980. There has been, it is said, a permanent change in attitudes. If so, I wonder why at the same time it is argued that we cannot give people more money to help industry for fear that it will feed straight through to pay. I wonder whether the fact that we have always placed such a low priority on our pay bargaining system, both in our analysis of Britain's problems and in our attempts to solve them, will help us, when we need to do so, to create a more responsible and sensible pay bargaining system that ensures that we can expand sufficiently to make a real cut in unemployment.

Mr. Needham: Did my hon. Friend see the article in The Times on Nye Bevan by the hon. Member for Bedwellty (Mr. Kinnock)? The hon. Gentleman said that Mr. Bevan had made clear that the only way to secure full employment was to make sure that there was a proper plan for wages. Is it not strange that, after that lesson has been given so many times, it has still not been understood in many parts of the House, not least by Opposition Members?

Mr. Patten: I do not believe that the late Mr. Bevan would have talked about national economic assessments. He had too much respect for the English language. He would have been inclined to call a spade a spade. It is profoundly difficult to encourage people to accept something if one is not even prepared to say what it is.

Mr. Winnick: Leaving aside the difficulties that sooner or later all Governments get into when trying to apply what many people consider to be wage restraint policies—they are wage restraints if we have respect for

the English language—does the hon. Gentleman accept the argument, certainly from the Left, that there has been little distribution of wealth in Britain?
I am sure that he knows the figures. One per cent. of the population owns 25 per cent. of all private wealth, 5 per cent. own about 50 per cent. and 50 per cent. own about 5 per cent. I accept that the hon. Gentleman does not believe that that should be condemned in any way. Nevertheless, the fact remains that no incomes policy or wage restraint, so much favoured by the Social Democrats and the rest, would change the distribution of private wealth.

Mr. Patten: The hon. Gentleman is tempting me to spend a long time travelling along a different boulevard. Even if we redistributed wealth in the way that he favours, it would make little difference to the economic prospects for the country. I doubt whether Mr. Scargill would wake up in the morning as an enthusiastic supporter of wage restraint and wage policies if we pursued the course advocated by the hon. Gentleman. In the social contract, time and again we have witnessed the Government giving to the unions and not getting in return as much as they or we might like. That was the case with the social contract under the Labour Government.

The Chairman: I hesitate to interrupt but I do not think that this matter has a great deal of relevance to the amendment, interesting though it is.

Mr. Patten: I apologise, Mr. Weatherill. I was tempted by the question of the hon. Member for Walsall, North (Mr. Winnick) and the occasional barracking of his hon. Friend the Member for Bolsover (Mr. Skinner).
The national insurance surcharge is relevant to the strategic issue with which I am dealing: whether there will be a revival led by investment and pay. The Government should be attempting to put more money into industry's pockets so that it can rebuild stocks. It would then have more to invest and could create more jobs. That would help with the first strategic objective that the Financial Times said had no precedent in Britain.
It may be argued that pay restraint would be less likely if we put more money back into industry. I suggested earlier that it is a little illogical to take that view as we argue that there has been a sea change in attitudes that is both the consequence of and the justification for the depth of the recession that we have been through in the past few years. If it is believed that giving industry more money immediately feeds through to excessive pay settlements, I argue, as I did last year, that cuts in the national insurance surcharge should be used to encourage responsible pay bargaining.

Dr. Brian Mawhinney: I have been listening to my hon. Friend with great care and with my customary admiration. Does he recall that in 1977 some of our colleagues promoted the idea that it would be possible to establish a forum of the various economic interests in the country——

Mr. Skinner: Another quango.

Dr. Mawhinney: —at which issues, such as national insurance surcharge and jobs, might be discussed? Does my hon. Friend believe that it would be a good idea to resurrect that idea, or at least to dust it off?

Mr. Patten: I do not want to strain your generosity by following that point too far, Mr. Weatherill. I agree with


what my hon. Friend suggested. It is easier to run a comprehensive and coherent policy for the public sector if there is some method for discussing and agreeing a criterion that would underpin pay settlements in the private sector.
I return to the only risk of making large cuts in the national insurance surcharge. There is a risk of a small increase in the public sector borrowing requirement. That is not as great as the total cost of cutting the national insurance surcharge because of the effect on economic activity. Moreover, the effect would be temporary rather than permanent, because of the effect of economic activity. One tiny risk might be involved this year. If, as some hon. Members argued during the debate on the Budget Statement last year, the national insurance surcharge had been cut by 2 per cent., the Chancellor would almost certainly have hit his public sector borrowing requirement. That is the amount of the risk if the figures given by the Treasury model are correct. The increase would have been £1 billion rather than £2 billion. "East Surrey man wins." That is the scale of the risk that my right hon. and learned Friend would have run.
Bearing in mind what can be accomplished by cutting the surcharge, that is the type of risk that the House should be prepared to run. It is the type of risk that the Chancellor should be prepared to run. I realise that he will not do so tonight, but I hope that he will keep an open mind about further cuts in the surcharge later in the year.

Mr. John Horam: The interesting thing about the debate, as the hon. Member for Bath (Mr. Patten) said, is that all the speeches have been good. We have not yet heard from the Treasury Bench. That may reduce the average a little. It could increase it remarkably if some of the amendments put forward by the Labour Party or the alliance were accepted. That may not happen.
The hon. Member for Chippenham (Mr. Needham) made an especially good speech. He went to the heart of the matter when he said that the Government appear not to have understood the needs of industry. The hon. Gentleman has experience of industry. Perhaps slightly lightheartedly, he went on to say that that might be as a result of the lack of industrial experience on the Treasury Bench. Apart from the Financial Secretary and the Minister of State, the Treasury is devoid of such experience. One must go fairly low down the batting order to find any industrial experience. That is a poor show.
The same is true of the Labour Party. If the other Establishment party replaced the Conservative Party on the Treasury Bench tomorrow, with the distinguished exception of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), the new Treasury Bench would be equally devoid of direct industrial experience.
There is a wealth of talent on the Back Benches of each party, but the hon. Member for Chippenham and the hon. Member for Workington (Mr. Campbell-Savours) never seem to get promoted. It is always the barristers or the boys from the back room of the research department who get the job. That is a great pity. It may be dawning on the hon. Member for Chippenham that if his party goes on as it has been, while the Labour Party is the party of the trade unions, the Conservative Party will be the party of the City

of London and the Bank of England. That leaves a convenient niche for the alliance as the party that understands industry.

Mr. Needham: Does that mean that the SDP is to be the party of big business?

Mr. Horam: I do not know who would be occupying the Treasury Bench if the alliance were in Government today, but my own industrial experience is certainly considerable.

Mr. Brittan: In view of the well-known business experience of the right hon. Member for Crosby (Mrs. Williams), the unrivalled business experience of the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) and the exemplary business experience of the right hon. Member for Plymouth, Devonport (Dr. Owen), is the speech to which we are listening to be interpreted as a personal plug for the advancement of the hon. Member for Gateshead, West (Mr. Horam)?

Mr. Horam: I should not be averse to that interpretation, as I certainly have more industrial experience than my colleagues. Nevertheless, I do not underrate the experience of my right hon. Friends. My right hon. Friend the Member for Glasgow, Hillhead (Mr. Jenkins), for example, has direct industrial experience, as have my right hon. Friend the Member for Plymouth, Devonport (Dr. Owen) and others of my colleagues.

Mr. Straw: Will the hon. Gentleman give way?

Mr. Horam: No, I am not taking a further point from a barrister.

Mr. Straw: The hon. Gentleman ought to do so. He is misleading the Committee.

Mr. Horam: I have no intention of doing so, and I did not mislead the Committee. The hon. Member for Blackburn (Mr. Straw) has no grounds for intervening in this debate. I understand that his experience, like that of the Chief Secretary, is of the legal kind.

Mr. Peter Bottomley: Will the hon. Gentleman give way?

Mr. Horam: As an alliance Member, I must be fair to both sides. I did not give way to the hon. Member for Blackburn, so I should not give way to the hon. Member for Woolwich, West (Mr. Bottomley).

Mr. Bottomley: On a point of order, Mr. Godman Irvine. Would it be in order in a subsequent speech to read out the hon. Gentleman's experience in industry, which he has presumably already registered?

The First Deputy Chairman (Mr. Bryant Godman Irvine): That is not a point of order.

Mr. Horam: To put the record straight, I should make it clear that I established my own company, which was extremely successful, with a 90 per cent. export record. That is more than can be said for any Conservative or Labour Member here today. As I seem to have stirred up a hornet's nest, perhaps I should leave the matter there.
It is important to place the national insurance surcharge in perspective. The Government now argue, on general economic grounds, that things are getting better, and no one is more adept or diligent at that game than the Chief


Secretary. Indeed, he started somewhat prematurely 12 months ago to try to talk up the economy. Now he finally has something to talk about. I concede that some of the indicators are looking a little better than they did 12 months ago. The inflation situation looks slightly better, the output forecast is a little better, there have been improvements in productivity and the position of interest rates is rather better.
The Chief Secretary's great advantage has been the ability to make comparisons with the situation 12 months earlier. To recast his brother's analogy, which was also used today by the right hon. Member for Stepney and Poplar (Mr. Shore), the Government, having climbed down from the peak of Everest, have now marched up Box Hill. The Chief Secretary can therefore make comparisons with the vale of tears which lies between Everest and Box Hill in his extrapolations to try to prove that the economy is improving. Given that comparison, things certainly look rather better, because nine months or a year ago there was despair and devastation in the British economy, as there largely is today.
The upturn, in so far as it exists, is extremely slight and fragile. For example, the Government forecast in the Red Book that output will increase by about 1½ per cent. this year. That was put in rather tentative terms in the Budget Statement, but a month or so later the Government can be confident of an increase of 1½ per cent. Indeed, it might even be 1¾ per cent. In terms even of the average performance of the British economy or of the economies of other countries since the war, however, 1½ per cent. is minuscule. The Government are confident of achieving that growth this year and the forecast suggests 2½ per cent. growth next year, but that will be the peak of the mini-boom.
If we achieve only 1½ per cent. this year, 2½ per cent. next year and even perhaps 2½ per cent. the following year before turning down into the next recession, unemployment may stop growing and stabilise for a while during this relative boom period, but it will not be reduced and at the end of the boom it will continue to march upwards to well over 3 million in 1984–85. The reality is that the Government have not been able to achieve a revival of output which has any significant prospect of actually reducing the real level of unemployment in the economy. If that is so, the prospects are indeed grim not just for the immediate future but for three, four or five years to come. That is the really worrying prospect.
Moreover, as the hon. Member for Bath said, the fragile, tender plant of 1½ per cent. output growth this year is greatly threatened and highly dependent upon de-stocking. It will not receive much boost from Government expenditure, capital or current, in the course of the year. Consumer demand is likely to be fairly flat and the deepening recession in the United States and difficulties in the world market mean that we shall have to fight against a general world recession. All of this will make it difficult for the United Kingdom to achieve even that modest revival of output. Like the hon. Member for Bath, I should like to see an investment-led revival, but, frankly, I am not choosy. I should just like a revival, even if it is not investment-led or not ideal. That is what industry wants, but it is not getting it from the Government.
Even on inflation, which the Chief Secretary and his colleagues so much like to talk about, the record is not good. Certainly we are now returning to the kind of level that the Government inherited and the trend is now

downwards as it was upwards then. I accept that that is the factual position and that it is some kind of achievement, although the Everest in between was rather high. While we have been making that progress, however, other countries have not stood still, and they are now beginning to show inflation rates which represent a substantial improvement on those for which we aim. We need to know the Government's real position on this. Perhaps the Chief Secretary will address his mind to this when he replies to the debate.
If the Government achieve an inflation rate of perhaps 8 or 9 per cent. in due course, which will be quite an achievement, given the institutional framework of this country, will they rest content with that? Or, as I sometimes suspect is the wish of the economic advisers, do the Government intend to screw us down even further to perhaps 4 or 5 per cent.? The pain and cost involved in that may be extraordinarily great. Perhaps the Chief Secretary will enlighten us about whether the Government intend to continue giving top priority to inflation at all stages of the game, with a view to achieving ever lower levels, or whether they are prepared to rest content with a substantial improvement and then give priority to other matters such as the level of demand of industry, industrial products, and so forth.
We should also know how the Government propose to deal with expansion if it is achieved. That is the real problem for the Government. They can achieve inflation rates of the kind that they have achieved with demand as flat as it now is and the economy as down as it has been for the past two or three years, but what happens when expansion comes? Do the Government have a policy to deal with the increase in wages which may flow from that, perhaps not in the current wage round but the next? The hon. Member for Bath made a number of relevant comments about pay bargaining.
The alliance is examining many different ideas on this issue. It is central to the debate, but the Government have not addressed themselves to it. In my frequent discussions with industrialists, it rings very true when I tell them that the Government have a policy for recession and for keeping down inflation in the present circumstances, but that they have no policy for expansion. The Government do not have a policy to deal with the inflationary consequences in pay and in other respects of having a substantial and sustained increase in output. So far they have kept the economy on the bottom, which they cannot do for ever.

Mr. Campbell-Savours: How does the hon. Gentleman respond to the comments of the Cambridge group last week about the Social Democrats' proposed reflation of the economy, suggesting that there would be no reduction in unemployment in that programme?

Mr. Horam: A reduction in unemployment would be extremely difficult in any reflationary programme. That is the problem with reflation. General reflationary measures are disappointing when it comes to reducing unemployment, as I think hon. Members on all sides will concede. Indeed, the Government argue that they are barely worth taking because unemployment is so high. The Government maintain that it is better to carry on as we are than to take such action. The general reflationary measures which, to some extent, the Labour Party has advocated, although it goes too far, and which we have advocated, together with


the special employment measures which we, uniquely, have advocated, give us the chance to reduce unemployment by 1 million over a couple of years. That is a modest but achievable aim.

Dr. Mawhinney: The hon. Gentleman asked my right hon. and learned Friend whether it was the Government's intention to settle for an inflation rate of about 8 per cent., which he said would be quite an achievement, or to press for about 5 per cent. Which would he prefer, and why?

Mr. Horam: I have argued for almost a year now that at this stage in the economic cycle we should take a balanced view. We should not give top priority to a counter-inflation policy, although we should seek to continue to control inflation. We should give top priority to reviving industrial demand. That is the balanced approach that would best serve industry.
I shall end on the third leg of the Government's argument about the improvement in the economy. It involves productivity and the better utilisation of labour which has taken place during the recession. It is true that many less-efficient plants no longer operate, and that has been good for the economy. It is also true that there has been a lot of demanning, which again has been good for the economy. However, that alone does not provide a basis for expansion and growth. For that we must have a revival of demand on a substantial and sustained basis, and that is what we do not have from the Government.
It is also true that in this general increase in productivity, which I welcome, many good firms have gone to the wall. The policy is a crude one. Clearly, better firms survive, but that does not always happen. It depends on their market situation, their short-term cash flow, and matters of that kind. Many good firms have gone to the wall as well as many inefficient ones, and those that remain have found that it is a matter of sheer survival. Many industrialists have told me that to survive they have had to cut out investment and product research, which would have led to growth in five or 10 years' time. They had to do that to keep the business going, and that action will be reflected in future performance. It is against that background that we must view the Government's boast about improved productivity.
I agree with those who argue for a substantial cut in the national insurance surcharge, or its total abolition. I am happy to join members of the Liberal Party in tabling the amendments in this connection. I hope that the Government will give them serious consideration, although I suspect that we shall be disappointed again. Although the effects on unemployment of either abolishing or substantially reducing the national insurance surcharge have been exaggerated, frankly I do not believe that it would have a big effect on unemployment. Some time ago I read an article in the The Times by the hon. Member for Bath in which I thought that he placed rather too much reliance on its effect on unemployment, but it would be a good step in terms of keeping down industrial costs and generally helping profitability, thereby keeping down prices, and certainly it is something that the CBI wants.
The CBI said very clearly what sort of Budget it thought would be good for industry, long before the Chancellor of the Exchequer produced his measures. It advocated what the Labour Party advocates, and that is a cut of about 2 per cent. in the national insurance surcharge, together with

other measures such as derating and not increasing duties on items such as whisky, with which I do not agree. It proposed a range of measures which went well beyond the Government's package.
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The Government would do well to listen more consistently and sensibly to what the CBI says. Since its new director general took over, it increasingly represents the real views of industry. In many ways the CBI is a disparate group, because it covers all kinds of industrial and commercial enterprises. Nevertheless, it represents the true views of industry.

Mr. Derek Foster: Does the hon. Gentleman share the CBI's preference for cutting back revenue expenditure on public expenditure in favour of increasing capital expenditure? Is the Social Democratic Party's policy well developed on that issue?

Mr. Horam: I should not favour a reduction in current expenditure, because we can ill afford it, but in any case it is rising, because of high unemployment. However, I believe that we can afford an increase in capital expenditure, as I have advocated both here and elsewhere.
The Government would do better to get away from their obsession with the intermediate targets, the PSBR, and the money supply figures. Instead, they should look at the real economic objectives of output, prices and unemployment. That is what they have not done. They argue that they have concentrated on intermediate targets, because they are easy to influence. However, the history of the past three years disproves that. From time to time they have taken measures, such as the doubling of VAT in their early months, which ran counter to sensible economic policy.
In the interests of industry, the Government must get away from giving priority to inflation at all times and in all circumstances. Industry wants a balanced approach which will minimise the shocks of the economic system and produce as level a growth of demand as we can achieve. That is what we should give industry, and in that context the reduction or abolition of the national insurance surcharge is an appropriate step.

Mr. Peter Bottomley: I listened with remarkable care to the moderate speech of the hon. Member for Gateshead, West (Mr. Horam). I do not want to spend much time on his industrial experience, except to say that in the reference books there is no mention of it. There is a bit about market research for a bunch of "smarties", or Rowntrees. The hon. Gentleman talked about a commodity company, which may have been the export business of which he spoke. If commodities amount to industrial experience, then many commodity traders probably have dirtier hands than I thought. If, on the other hand, he has more substantial industrial experience, I wonder why he does not publicise it when he describes himself.

Mr. Horam: The hon. Member for Chippenham (Mr. Needham) based his industrial experience on selling knick-knacks abroad. I certainly think that Rowntrees is a substantial industrial company. It may deal in confectionery, but that does not make it any less an industrial company. I was involved in marketing as well as in market research. Indeed, I had the pleasure of helping to introduce to the world the "After Eight" thin mint. That had a remarkable product success. If its success could be


achieved by other companies, their profitability would be assured. The point is that, whatever part of the market a person is in, whether confectionery or cars, it is still a matter of selling products. In addition, starting a new company represents a background of industrial and commercial experience which very few Members on the Government side can match.

Mr. Bottomley: If I may deduce from that that the hon. Gentleman has been engaged in the industrial battle, I think that I should award him the medal of the chocolate soldier. My experience in industry is slightly greater than his, but I will not boast about it. Our job is to talk here as politicians, I hope with our feet on the ground. I do not think that anybody should feel disqualified because he is an hon. and learned Gentleman, a right hon. and learned Gentleman, a doctor or anything else.
I think that we should return to this matter on some future occasion and try to get a broader representation of Members with industrial experience, not just those who are directors of companies or even full-time convenors.
Turning to the national insurance surcharge, again following the point made by the hon. Member for Gateshead, West, I do not think that there is a clear choice between continuing to reduce inflation and seeing more effective demand in the economy. I am not one of those who supported the CBI's pre-Budget submissions saying that the important thing was to get as large a reduction as possible in the national insurance surcharge. I listened and spoke to a number of representatives of the CBI during the months before the Budget. I asked each of them, after they had made the point about the national insurance surcharge, what pay increase they had given their employees the year before and what had determined what that pay increase should be. It turned out that in nearly every case they had given a pay rise substantially in excess of the underlying increase in either profitability or output per employee.
I remain unconvinced that reducing the national insurance surcharge substantially will have no effect on the level of pay settlements. I believe that pay claims cannot be influenced directly, but that the level of pay settlements can. I would follow the line that was thrown out, I think, by my hon. Friend the Member for Bath (Mr. Patten), that perhaps it would be right to make further reductions in the national insurance surcharge in line with more realistic pay settlements. I believe that there is a trade-off, but I do not believe that reducing employer costs or the payroll job tax by 3½ per cent. or 3 per cent. immediately would have no effect on pay settlements.
It is obvious that, given half a chance, pay settlements will start rising instead of continuing to fall gradually. I believe that the Government ought to recognise that getting the level of pay settlements down requires acceptance by a large number of people involved in pay settlements. That is a matter not just of the unions and employers but of the underlying sense of fairness and acceptability of the majority of the working people. For that, as my hon. Friend the Member for Peterborough (Dr. Mawhinney) said, there should be some kind of open discussion of the underlying issues as they affect job tax, the national insurance surcharge, the chances of getting down inflation and prices and of increasing opportunities for employment and demand.

Mr. Needham: As I understand it, my hon. Friend said that a reduction in the national insurance surcharge would

have an effect on pay settlements. Has he got anything other than anecdotal evidence for that? All the advice that is being given to me, certainly by the CBI, which has discussed this matter at great length within its committees, both regional and at the centre, is to the effect that there is no evidence whatever that a reduction in the national insurance surcharge would have any impact on pay settlements.

Mr. Bottomley: That is an important point. I think that the argument starts from a different point and ends up roughly in the same muddle. I shall say why I think it is a muddle.
Many pay settlements have been struck on the ground of what firms could afford. Much of the talk we have heard about the growing sense of reality has been tied to particular industries or companies within industries—for example, British Leyland. Employees have accepted pay offers substantially below the level of inflation, and certainly below the level of inflation at the beginning of the year for which the pay settlement is made, because they have been convinced that the people they are working for cannot afford to pay more. Indeed, many of the pay settlements, even at half the inflation rate, have been in businesses and industries which have been associated with a large number of redundancies. So the pay increase, even though it has been at 5 per cent. with inflation at 10 per cent., has been paid for by the loss of people's jobs. That is incontrovertible.
If we make it possible for firms to have more money we want to see it go into investment. We can only take it on trust when the CBI says that if there were a reduction in the national insurance surcharge the money would be used for capital investment, building up stocks, research and development or other good things. It asserts that it would not be used to increase the level of pay settlements.
That is the kind of assertion which we have seen disproved by the actions of employers both in the public sector and, mainly, in the private sector during a number of re-entries from pay restraint during the past 20 years. We have seen firms forced to settle pay claims at higher levels year after year until the Government called a halt, or, in this present recession, conditions have made it sensible for people to accept reality.
When the CBI says that it will not allow any extra reduction in the national insurance surcharge to go through to pay, my answer is that it is not within its control. It has not shown that it can stand out against pay claims which are pushed to the limit of what business can afford. There may be a number of industries, businesses, or industrialists, such as the hon. Member for Gateshead, West and my hon. Friend the Member for Chippenham (Mr. Needham), who say that this extra 1½ per cent. or 3½ per cent. will stay in the business, that it will be invested to create new jobs and we shall see the results in two or three years. I do not believe that most employers have the strength of mind or the industrial strength to stand out against many of the pay claims which are pushed to the limit.
It needs only a few employers to give way for the general level of the pay round—accepting that we are not having a formal policy that ties everyone to a particular limit—to become part of received wisdom in the months that follow.

Mr. Needham: Now that the national insurance surcharge is to be cut by 1 per cent., has my hon. Friend


any evidence to suggest that the claims or the settlements have gone up by 1 per cent? Why does he believe that, when it comes to settling claims, the unions and the management would take this into account? It is much more likely that, as my hon. Friend says, they would take into account the general level of profits and trading activity and what is happening in the area as a whole. There is nothing but anecdotal supposition on his part to suggest that one leads to the other.

Mr. Bottomley: The burden of proof is the other way round, as my hon. Friend knows perfectly well. Let me sum it up in a complicated way. If a reduction in the national insurance surcharge means that there is more money within the business, there is more money available for pay, for other things, or even for profit. I think that can influence the level of pay settlements. My hon. Friend asks for causal proof that within the last month or two months there has been a link with settlements. I shall not offer it to him because it would be purely anecdotal.

Mr. Frank Hooley: The real point, surely, is that the vast majority of employers do not consult or inform their work force about the economic realities of the business. If the hon. Gentleman does not believe me, he should note what his right hon. Friend the Secretary of State for Employment said the other day. He said that two-thirds of employers make no attempt to inform their work force of what is going on and the reality of the company's commercial position.

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Mr. Bottomley: I am sure that the hon. Member for Sheffield, Heeley (Mr. Hooley) is right about the majority of employers. I should turn it the other way round and say that the majority of employees work in businesses where they have organised management, whether in the public or private sector. Many more ought to be doing what the hon. Gentleman is arguing for.
I declare a family interest in what my father-in-law does in the Industrial Society in trying to get the idea of briefing groups, sharing information and proper, effective consultation into nationalised industries and large private industries. That shows the way ahead. It is a far more effective way than some of the plans we see from Europe or from the Labour Party. I cannot criticise the plans of the Conservative Party as I am not sure what our plans are on this important subject.
I think that the level of pay settlements makes it possible to reduce the national insurance surcharge further. The problem is how to reconcile competing claims for extra resources. There was an earlier intervention about wage restraint. I would argue that the most effective way of restraining the real earnings of those at work is to go on with the kind of messy pay settlement system that we have apparently grown to live with in the past 25 years. So much concentration on nominal pay increases—the number of extra devalued pound notes that we get in our pockets each year—has taken our eye off the main chance, which is the opportunity to be more effective, more efficient and more productive, and to have a high level of output. There is no point in having higher productivity without higher output, for there will just be higher wages for those at work and a lower standard of living for a growing number of people.
During the past five years or so, many people have increased their standard of living, if they have a job, but a vast number of people have had their real standard of living cut by 50 per cent. or more as they have lost the chance of employment. The Government ought to get from the TUC, after some reasonable period of notice, not a fixed list but an idea of those who are seen as the priority cases for special treatment during the forthcoming 18 months.
It is important that both the Government and the Labour movement, defined broadly, should get away from the idea of considering a special case a month without any notice. If we are concerned, for example, that the nurses deserve more than the rest of us, let us try to say that a year in advance of the nurses' pay claim coming up. We can then, up to a year and a half in advance, ask other groups in industry or in the service sector who are in normal trade union negotiations—not so much the small business people or the wage councils, but organised labour—to say who the special cases are. We do not have to set the limit for them under any kind of formal wage policy, but we should try to develop a consensus that, over the next 18 months, certain people need to be treated with more generosity, consideration or equity than the rest.
If we introduce such a policy, we can bring down the general level of inflationary pay settlements. That would meet the point made by my hon. Friend the Member for Chippenham and would demonstrate that a substantial reduction in the national insurance surcharge would not lead to a new spiral of inflationary pay settlements. Getting rid of inflationary wage settlements is what the Government have been trying to do for the past three years, with limited success in the first two and a half years. They are having slightly more success now, but there is no guarantee that it will be permanent. I use the word "permanent" to describe any period that runs past the next general election. It is easy to manipulate many other parts of the economy, but pay settlements are rather larger than that. My hon. Friend the Member for Bath referred to the level of demand in the economy. I wish that the House discussed more dynamic economics. Instead of trying to look at a static State economy, which may be necessary if the economy is not growing, we ought to see what effect different levels of inflation will have on the public sector borrowing requirement.
If my right hon. and learned Friend the Chancellor, when he gives his Budget judgment, would say what the impact on the PSBR would be if the general level of pay settlements, or of inflation, were 1 per cent. higher or 1 per cent. lower than the figure in his Budget judgment, many more of us would be able to look at the different levels of demand that would appear to be associated with different levels of inflation. These are strongly linked one way or another with the level of pay settlements during the year.
There are effectively only two ways of achieving more jobs. One is by taking people out of the work force by reducing the number of years that we work during our working lives, giving perhaps two years of training to each young person leaving school and bringing the age of retirement down, working fewer weeks per year and hours per week.
The second way is by getting greater effective demand. That is not altered much by £1,000 million on the PSBR, although it contributes to the potential level of effective demand. What is far more important, given Britain's


trading position in the world, is our level of competitiveness. Although that can be affected by a 1 per cent. extra reduction in the national insurance surcharge, it is affected far more by the underlying realities of production.

Mr. Austin Mitchell: And the exchange rate.

Mr. Bottomley: And the exchange rate, as the hon. Member for Grimsby (Mr. Mitchell) says. The hon. Gentleman once sent me a three-page letter after I had accepted a one-sentence interruption from him. I must get round to reading the other two pages.
What matters even more is what has started to happen to British Leyland during the past 18 months, with more cars produced per employee instead of the worsening ratio for the first five years of State intervention.
The Government are approximately right in the reduction that they are proposing in the national insurance surcharge this year. Nobody believes that the ½ per cent. extra reduction for the eight months of this year will be put back. That is a figment of anybody's political imagination. They should say under what conditions they would reduce the national insurance surcharge by an extra 1 or 2 per cent.
Only when the Government are willing to put these ideas forward months, if not a year, in advance will we have the kind of response from Parliament and, behind Parliament, the kind of discussions and considerations by people in industry, the service sector and the nationalised industries that will make it possible for us to match our ambition with our actions. Too many outside Parliament have ambitions and actions that are inconsistent and we end up with an economy with a lower growth, higher Government spending and a lower standard of living than we ought to be able to achieve.
I hope that the Government will at least read this debate and will consider how they can bring more people outside the House into considering the issues that we have been raising this evening.

Mr. Campbell-Savours: When the hon. Member for Woolwich, West (Mr. Bottomley) suggests that the level of pay settlements may be directly determined by the amount of money made available to employers, in this case by a reduction in the surcharge, he perhaps misunderstands to some extent what is happening on the shop floor in industry. As I see it, what is far more a determinant is the ability of industrial workers to identify short-time working and the threat that short-time working means to their employment. Although in many ways the two are linked, to many people on the shop floor they are not. If they are on short-time working they believe that their jobs are threatened and that they should take reduced settlements. It is not a view to which I subscribe, but I shall not go down that route today. It is not the right analysis to make.
If this debate, and other debates, are to be an indication to the House of the feelings of members of the Finance Bill Committee this year, the Government may be in trouble. I have not looked at the appointments to the Conservative Benches in the Finance Committee but it is obvious that throughout the four major debates all but one or two speakers have on occasion bitterly criticised the Government's economic strategy. It would be interesting

to review the appointments to see whether those same people have been appointed to the Committee. I cannot believe that that is possible.

Mr. Straw: My hon. Friend the Member for Workington (Mr. Campbell-Savours) is being customarily over-generous to the Government. It is difficult to name one Conservative Back Bencher who has spoken in fulsome support of the Government in Committee on the Floor of the House. The Treasury Front Bench are now stranded without support. If they have support, it certainly is not visible in the House.

Mr. Campbell-Savours: When we examine those lists we may find that many hon. Members who have been appointed have not spoken in the debate but have been appointed because they are known to be loyal to Government strategy and in many cases not too willing to express dissent and to argue against its thrust.
The hon. Member for Chippenham (Mr. Needham) made an extraordinary speech. He was bitterly critical of the Government. When he addressed his remarks directly to the Chief Secretary I understood him to be saying that there are too many lawyers in the Treasury and not enough people who have dirtied their hands in the industrial workplace. He was appealing for a shake-up on the Front Bench and the introduction of hon. Members who understood the problems in industry.

Mr. Richard Wainwright: Does not the hon. Member think that the hon. Member for Chippenham (Mr. Needham) was also implying his displeasure in that pungent speech at the fact that no members of the Cabinet represent the real industrial areas of Britain, quite apart from their lack of personal qualifications?

Mr. Campbell-Savours: I believe that the Chief Secretary has an industrial constituency in the North-East. I am told that part of it is industrial. It is not for me to say how precisely he is advocating the views put to him by his industrial constituents.

Mr. Straw: Before the election, the Chief Secretary claimed to understand exactly his constituents' interests. He argued for increases in public spending and called for Whitby and Cleveland to be made a special development area. Since the election male unemployment in Whitby has risen from 9 per cent. to 34 per cent. and the hon. Gentleman has sent the Whitby trades council letters saying why Whitby cannot be a trade development area.

Mr. Campbell-Savours: I am sorry that the Chief Secretary is not here to defend himself. I am sure that the members of the Labour Party in that part of the country will note the comments of my hon. Friend the Member for Blackburn (Mr. Straw) with great interest. They may wish to write to him.
The contributions of the hon. Member for Bath (Mr. Patten) are always enlightening. They have substance but he always takes us down the incomes policy road and drops us when it comes to a real presentation of his demands. One day he might outline to us in detail what kind of incomes policy he wants. He has criticised the national economic assessment proposed by the Labour Party. He is clearly at variance with the position of his own party on free collective bargaining. He should entertain the House with a more precise expression of his beliefs.
7.15 pm
During the last debates, particularly those on the national insurance surcharge, it emerged—as it did last year when we discussed related matters—that the hon. Gentleman believes that because the measure was introduced by a Labour Government we have no right to criticise it. However, as my hon. Friend the Member for Walsall, North (Mr. Winnick) so accurately said, that has no basis in truth. Very different conditions existed in the late 1970s when Labour was in Government. There can be no better example than the fact that unemployment has gone up to 2½ times what it was in the latter days of the Labour Government. There has been an 18 per cent. reduction in manufacturing output and a 6 per cent. reduction in GDP; energy prices have soared as a proportion of total manufacturing costs. At the same time, investment in manufacturing industry has declined. By no stretch of the imagination can Conservative Members criticise our proposition in the new conditions of industrial recession created by the Government. When the Minister replies he should address himself to the truth and not to the myth of the argument that has been repeatedly used during the past few weeks.
That is not only my view, but a view which is adequately reflected in CBI News. On the front page of edition No. 3 for 12 February 1982 the CBI outlined the four priorities for immediate action which have been referred to by my hon. Friends this evening. In case hon. Members have forgotten what they were, it may be worth looking at those four priorities and contrasting them with the Budget.
Under the heading "Budget: CBI calls for business boost", CBI News said:
The need for the disproportionate burden on business to be removed in order to encourage growth and create jobs is made in the CBI's Budget representations to Sir Geoffrey Howe. Calling for a 'winning Budget', the CBI gives four priorities for immediate action: Reduction in the national insurance surcharge by 2 percentage points".
have a one percentage point reduction.
A 15 per cent. cut in the rates paid by businesses by introducing 15 per cent. derating to put business on equal footing with domestic ratepayers".
It did not get that; it got the prospect of escalating rates next year as local authorities fight hard to retain this year's level of services—a considerable reduction on the level of services provided in former years. It then called for
A reduced interest costs burden and more competitive exchange rates".
There has been a marginal reduction of interest rates-a 1 per cent. reduction which no one can guarantee will remain long-term.
Some CBI members are seeking a form of intervention on interest rates to help some industries on a wider and broader basis than currently exists under the European cheap money provisions that have been arranged with the European Community. There has also been a marginal change in the exchange rate—perhaps more than a marginal change—a reduction from $1·88 to the pound to $1·80 to the pound in the period from 12 February to today, 5 May.
The article went on to ask for
New productive investment in the public sector, starting with worthwhile projects totalling £250 million in 1982/83 and building up to £1,000 million in 1983/84".
Under one interpretation of the Budget package, it could be said that £90 million was provided, but that is nothing like the £250 million that was asked for in the article.
There was then a request for more competitive industrial energy costs, abolition of empty property rates and the introduction of mothballing relief for business premises, abolition of the four month delay in paying regional development grants, a cut in the harmful effects on enterprises and smaller businesses of the capital gains and capital transfer tax and no further rise in excise duties".
Is it not strange that, of the five minor areas to which I have referred in the last section of the CBI's general demand, the only concessions received were in relation to our old friends the CGT and the CTT? They were referred to at length in the debate last week and I do not wish to labour them now.
Hon. Members will have received, as I have, the brief from the British Paper and Board Industry of 12 March. Referring to the concessions on energy prices in the Budget, it states, in regard to electricity:
The load management proposals will generally only benefit those industries which have the ability to interrupt their processes and/or have self-generating capacity. The paper industry uses a continuous process and in general does not have surplus generating capacity. Therefore, the load management proposals will only be practical for a very small number of mills who purchase 6 megawatts of electricity or more. The proposals are of no value to the great majority of high energy-intensive mills which will remain at a disadvantage of up to 20 per cent. in electricity costs compared with their Continental competitors. On heavy fuel oil, the Chancellor has been apparently unable to reduce the heavy burden of £8 per tonne excise duty which is at least double that of our EEC competitors. This costs the industry about £6 million and we still feel it is an unjustified impost. This, together with the fact that prices on the Continent are generally lower anyway, places the industry at up to 20 per cent. disadvantage in oil prices with its Continental competitors.
Therefore, in that very important area of additional aid to manufacturing industry, the Government sought not to give way. Indeed, we all know where the £6 million went. It went in the various concessions which were given at the wrong end of the CBI demand—the concession on CTT and CGT, which have absolutely no impact on industrial regeneration in Britain. The proposition that it can have an impact is a myth perpetrated by Conservative Members only to protect their own friends.
It might be interesting to consider why the CBI lobbied for the national insurance surcharge reduction. It says that 27·2 per cent. of all NIS receipts to the Treasury come from its members or the people that it seeks to represent. I should have thought that that sector more than any other in the British economy should be singled out for special aid by any Government in times of recession. Indeed, it would be the greatest beneficiary.
It is interesting to consider the views of Sir Raymond Pennock, the former conference president of the CBI. He had a very pertinent point to make in reference to the reduction. He said that, for the company that he represented, the benefit would be to the tune of £9 million, and that he could give a personal undertaking that the money would find its way back directly into manufacturing investment. So there is a prominent British industrialist promising the Government to invest in manufacturing and thereby help to reduce the current high levels of unemployment.
On 2 February, The Sun said that the surcharge was a tax on jobs at a time of record unemployment, when firms were being starved of investment by the recession and by penal interest rates on borrowing.
On 27 January, The Times said that the Tory Party could unite behind the growing consensus for a moderate


package containing a substantial cut in the national insurance surcharge to assist industry. But that request was not to be conceded.
On 9 November, The Daily Telegraph said that the Prime Minister had correctly argued in debate that British industry's competitiveness was hampered by excessive national overheads imposed by Government. The national insurance employers' surcharge was one of those overheads which also reduce employment. Its abolition should be a high priority, it said.
The CBI may not have gone as far along the road to reflation as the Labour Party has been demanding in the House, but it has demanded more than £2 billion in reflation. The Budget may prove to be negative, in the sense that no additional resources are being channelled into the economy in real terms.
Credit should be paid to the CBI for the very successful exhibition that it staged at Centre Point in London three weeks ago. I know that it was attended by some Members of this House. Certainly the hon. Member for Rochdale (Mr. Smith) was there, and I am sure that he would agree with my conclusion that the "Can You Make It?" exhibition was a major way for industrialists to seek to attract new work for their enterprises.
If additional resources are to be made available at any time in the future for the support of industry, the Treasury would do well to consider the effort made by the CBI at that exhibition, and be willing to fund similar enterprises in other parts of the country—perhaps even in the Northern region, in which my own constituency and that of my hon. Friend the Member for Bishop Auckland (Mr. Foster) fall.
Many of us feel that one of the problems is that our industrialists are unable, for whatever reason, to identify the work and business orders which should come the way of British manufacturers. As a result, much of the work is funnelled abroad, often because overseas competitors are sophisticated enough to be able to take advantage of the arrangements for purchasing that exist within the United Kingdom.
7.30 pm
The Association of Independent Businesses, which represents many small businesses, had this to say about the Budget and the Government's actions in support of small business:
The length and depth of this recession have severely stretched the resources of existing independent businesses, in many cases to breaking point as rising insolvency and bankruptcy statistics demonstrate, yet the Budget assumes only a minor economic upturn by early 1982 and postpones any revival. The Government appears to be relying on a slow-down in destocking and extensive personal dissaving to maintain even current low levels of demand. Neither effect will substantially ease the position of industry in the short term, nor will the planned decline in Government expenditure on goods and services.
On the wider Budget issues, the Association fears that given the problem of lack of demand faced by many existing businesses the Budget may prove too deflationary and the implementation of the financial strategy too long for many independent businesses.
It is interesting that those comments come from an organisation supported by many Conservative Members. It represents the strand of business thinking that exists on the Floor of the House, certainly among many Back Benchers. It is hard to understand how such an organisation, which would claim to reflect Conservative views in many areas, has been utterly dismissed by the Government. The problems and anxieties of small businesses are not being dealt with at the Dispatch Box.

There is a duty on the Government to respond in a way that is beneficial to their interests. They employ people and the economic and industrial argument is about jobs. Our people are desperate for jobs and the Government must respond.

Mr. Andrew F. Bennett: I listened to most of the debate a few days ago on the double taxation of unemployment benefit, and I have listened to mast of today's debate. It is surprising that the Government have not found any Back Bencher to support either of those measures. It is an interesting illustration of the way in which the Government have lost the support of many of their Back Benchers. The attacks during the debate on unemployment benefit came from the Tory wets, which seems to be a common occurrence in the Chamber.
It is also interesting to note that, although around Christmas it was suggested that the wets would mount a formidable challenge to the Government's policy, a few minor appointments to either ministerial office or the Whips Office have caused the challenge to fizzle out almost completely. In last week's debate a mere handful of Conservative Members followed us into the Lobby and it appears that tonight none of them will do that.

Mr. Peter Bottomley: I am supporting the Government's proposals today.

Mr. Bennett: I am sure that the Government will be very pleased about that. It is rather a turn-up for the books.
Any tax on jobs at present time is obscene. Our crying need is for jobs, and anything that makes job creation a little more difficult should be removed. The hon. Member for Chippenham (Mr. Needham) suggested that there was a change of mood in the workplace and a new spirit abroad. The new spirit that he envisages is not the one that I experience when I talk to workers in my area. The spirit that is abroad in my area is a fear of redundancy. It means that on some occasion people are cowed into not taking industrial action or not pressing for extra wages. Faced with the fear of unemployment, more and more resentment is building up, and sooner or later it will bubble over. We shall have as many problems as we had before.
If we wish to have a new spirit in industry we must change the attitudes that have been instilled into people for almost 30 years. The idea in the days of full employment was that we had to reduce the number of workers in particular jobs, that machinery should be brought in and that ways should be found so that one person could do the work of two or three. That was thought to be much more efficient. Those ideas came not only from management, but repeatedly from workers who wished to agree with them because it gave them more and more income.
That made perfectly good sense as long as we had full employment and when the person who was made redundant could find an alternative job. However, now that the growth in the labour market has ceased, we must have completely different attitudes. The failure of the Labour Government up to 1979 was that they did not manage to create new jobs as fast as the demand, but the number of those in employment rose steadily until about May 1979. It is only since May 1979, when the Conservative Government came to office, that the number of employed has started to fall. Against that new background we must find ways in which two people can


be employed where one person was employed before. It is important that should we remove attacks on jobs such as this measure.
I regret that on many occasions during the period of full employment people gave up their jobs because of mechanisation, which supposedly introduced greater efficiency, but which did not work. I served on a local authority that had the idea of getting rid of the old road sweepers with their brushes. There was great enthusiasm for bringing in a new mechanical sweeper which would do the work of six people with one man driving it. In practice, it saved six sets of wages and just about paid for the new machine. However, when we examined the job two or three years later, we found that the machine provided a less efficient service. The mechanical sweeper failed to clean the pavement and had to steer its way round parked cars, so that a much less efficient job was done.
In many instances mechanism was brought in on the basis that it gave individuals higher wages and was more efficient. We must now examine that process carefully to see whether we can bring about greater efficiency by employing more people rather than by using machines which may not do as efficient a job as the individual. To do that, we must get rid of measures such as this job tax.
I support the amendment and the argument that we should be much more competitive. It will do a little to reduce inflation and might create about 50,000 jobs, but I should have preferred a more selective measure. I accept that the measure is selective, but it is selective in the worst possible way. The Government are reducing the surcharge for private firms, but leaving it on the public sector. That is a doctrinaire approach and is not based on logic.
I hope that the Minister will explain why the North-West Electricity Board, which has people successfully designing a domestic electricity system for Saudi Arabia, will not get the benefit of the reduction in the surcharge. A private company attempting to win the same sort of export order, where the work is done in Britain for a foreign buyer, would get the benefit. That is illogical.
The success of many of our nationalised industries and public enterprises in winning orders from abroad to provide valuable services in the countries buying the product, and thereby providing jobs in this country, is not referred to often enough. It is amazing that the Government can take the view that such operations will not benefit from the removal of the surcharge.
Local authorities carrying out their own repairs and maintenance on houses or building new council houses will not benefit from the removal of the surcharge, but if they employ private contractors to do the work there will be a benefit in the price. That is crazy. The Government should remove this selectivity between the private and public sectors.
Different criteria for selectivity should be applied. The amendment should contain more selectivity. I know that there are difficulties in framing amendments; but I should have liked to see the abolition of the surcharge where employees are involved in training within industry. This should apply both to those doing the training and to those receiving it. We should do all that we can to encourage industrial training. To do that as one of the steps would have been logical. I suggest complete abolition in that area, while retaining the surcharge for other areas, if possible at a slightly higher level.
I should like more to be done to induce companies to take on the long-term unemployed. Those of my constituents who are unemployed tell me that time after time when they go after jobs the companies exercise a preference for the individual who was most recently in work. The person who has been out of work for 12 months finds that he is at a disadvantage compared with the person who has been out of work for only a short time. We should give 100 per cent. exemption to those firms taking on new employees who have been out of work for more than 12 or even 18 months. The measure should be used in that way.
I deal next with regional policy. The Government's regional policy on Greater Manchester, and particularly my part of it, has been disastrous. In tabling the amendment consideration should have been given to abolishing the surcharge in those parts of the country where unemployment is high and to redressing the effects of the Government's decision to remove intermediate status for areas such as Stockport. That is an amazing decision which the Government appear determined to push forward. They are removing an incentive to industry to come to Stockport. I am sure that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) appreciates that there is a similar problem in Tameside. Reduction of the advantages for industry in those areas has been a major blow to reducing unemployment.

Mr. Campbell-Savours: My hon. Friend makes an interesting point. It is worth noting that the Conservative Party manifesto stated:
We do not propose sudden, sharp changes in the measures now in force.
That referred to regional strategy. The Opposition can honestly suggest that the Government have done the opposite to what they said they would do in 1979.

Mr. Bennett: If the electors of Stockport had been told by the Conservative Party that the area would lose intermediate status, the Government would have received even less support. If people in Knutsford, where many of those involved in running industry in Stockport live, had been told that Stockport would lose its intermediate area status, there would have been much more criticism than there was during the election campaign. Many of those people are extremely bitter about the decision. The amendment should have been more selective and proposed the reintroduction of some of the advantages.
The people of Stockport are bitter. They have done a great deal to make the town attractive to industry. They take advantage of the fact that Manchester has a first-class international airport close to Stockport, that it has first-class road and rail communications and that to the south and east of Stockport there is extremely attractive countryside. There has also been a long tradition of skilled labour in the area. Despite all those advantages, when Stockport tries to attract industry the loss of intermediate status means that industry is attracted to other areas, in some cases where there is lower unemployment than in Stockport.
The Government should have made this a selective measure. I believe that eventually there should be abolition, but in the interim the measure should be used to encourage companies that go in for training, to encourage firms that offer a fair deal to the long-term


unemployed and to encourage firms to move to areas of high unemployment rather than continue to develop in the more prosperous areas.
I support my hon. Friends, but I hope that the phasing out of this jobs tax can be done more selectively.

Mr. Geraint Howells: I support the amendment tabled by my hon. Friends and hon. Members in the Social Democratic Party. The alliance is working as a team to do its utmost to abolish the national insurance surcharge.
I have listened with interest to hon. Members on both sides of the Committee and I honestly believe that the majority are worried about the plight of industry, unemployment, small businesses and the self-employed. Most have spoken about the effect that the national insurance surcharge will have on the nationalised industries.
I refer to the private sector. I have the privilege to represent a constituency with a high proportion of self-employed—probably the highest in Britain. Many are small business men, who form the backbone of the rural economy. I am proud of our record. More than 30 per cent. of the people in my constituency are self-employed.
Less than 10 per cent. of my constituents work in manufacturing industry. The remainder work in the service industries. In some parts of Cardigan and Ceredigion unemployment is as high as 25 per cent. It was 25 per cent. under the previous Administration. I am not proud of the record of the present Government because very little has been done to alleviate the problem that has existed in the Teify valley in my constituency for the last 10 or 15 years.
We in the Liberal Party have said for many years that the small business sector has an important part to play in the United Kingdom economy. It can contribute towards encouraging enterprise. We have also advocated positive discrimination in favour of small firms and would like to see that sector prosper for the benefit of the community as a whole. So highly do we rate that sector that we have pressed for a Minister representing small businesses to have a seat in the Cabinet so that he or she could defend that sector's interests at the highest level.
During our agreement with the Labour Government in 1978, we pressed the then Prime Minister, the right hon. Member for Cardiff, South-East (Mr. Callaghan), to have a Minister in the Cabinet to look after the interests of the self-employed. Fortunately, our leader persuaded the then Prime Minister to appoint a member of the Cabinet to look after those interests. Today, it is well recognised that the Liberal Party did more for the self-employed and small businesses in six months than the two major parties have done during the last 50 years.
We also feel that with their special skills and enterprising ideas those sectors could contribute towards making industry as a whole more competitive. We have many small businesses in Britain. The self-employed can also play a major role. We also believe that one of the most important functions of the small business sector is to employ labour. However, we find that in recent years small firms have lost ground as a source of employment. Indeed, their share of total employment has halved since 1935.
That is not true of other countries. For example, I understand that, based on population, West Germany has 40 per cent. more small firms than we have. That is a wonderful achievement for the West German

Government. We have lost an important opportunity somewhere, and with the collapse of heavy industry surely it is now time to make good our neglect by aiming to develop the small business sector rather than stifling it.
That sector has for many years been troubled by many problems, ranging from high interest rates to complex and time-consuming paper work. One factor in particular has inhibited the small employer from taking on additional staff—the iniquitous tax on jobs, the national insurance surcharge. I have already said that I have a high percentage of self-employed and small businesses in my constituency. Another fact about which I am not so happy is that in Ceredigion we also have pockets of unemployment, in some districts ranging between 20 per cent. and 25 per cent. of the adult population registered as able to work. Many of those who make up these sorry figures are young people, some of them highly skilled and well-educated, who, despite their best efforts, have failed to find jobs either in Ceredigion or elsewhere in Wales or the United Kingdom.
I want to see a revived small business sector full of enterprise and vigour that is prepared to employ some of those young people. But until we relieve it of some of the financial burden unnecessarily placed on it by Government, we shall get nowhere.
I have talked to many small business men who tell me that they have the will and the work. They see plenty of labour around them, but they simply cannot afford to take it on. Abolishing the national insurance surcharge would be one vital step towards easing their burden, and one that the Government should not hesitate to take.
There are many options open to the Government that could help the self-employed and small business men. Mention has already been made of risk capital. It is time that we gave risk capital to some of our youngsters. I am talking not about firms that employ 100 or 200 people, but about the small man who employs two, three or five people in a rural area. Help should be given to those small businesses that would give of their best if only they were given the right encouragement and incentives by the Government of the day.
I again declare my interest, which is a tradition in the House. As a farmer, I know that many thousands of us take on labour. In my view, many more people could be employed on the land if the Government of the day gave the right incentives and encouragement to agriculture.
Liberals and members of the alliance believe in small businesses and their importance as employers. We would like £250 million put towards providing advice and venture capital for both smaller businesses and co-operatives. I have emphasised time and time again the importance of the small business sector to the economy in Wales; the wellbeing of that sector is essential for our survival.
A recent study has shown, however, that throughout the country generally small businesses are shedding labour, mainly as a result of Government policies that have made life difficult in a number of ways, ranging from the national insurance surcharge to the new sick benefit regulations. Our aim is to help the small business men and the self-employed, to get rid of unnecessary bureaucracy and to give them sufficient confidence to take on more labour.
These are just a few of the suggestions that Liberals are proposing to deal with the present crisis, but in the long term, if we want a stable economy with bright employment prospects, there must be a permanent prices and incomes


policy—not one cobbled together in haste as a panic measure, but one that will ensure a fair deal for everyone. Only then can we look forward to a period of industrial peace and prosperity.
We have the labour, we need it, but we cannot afford it. It is therefore time for the Government once again to see what help they can give to our small business men and the self-employed. They need the Government's help, and it is time that the Government did something for them.

8 pm

Mr. Hooley: Much of our debate on the national insurance surcharge has turned on industry's problems. That is only right, because industrial problems are at the core of the economy's difficulties. It is also right to discuss, in effect, a payroll tax at a time of massive and sustained unemployment.
The excitement over the Falklands crisis has obscured the fact that this month unemployment has again exceeded 3 million. That is only the official figure. It is generally reckoned that the true figure is 3·5 million or 4 million. In any discussion of such a payroll tax we must consider its impact on industry and on industry's problems. In that respect, the Government's record is bizarre. There has been a fall in industrial output of nearly one-fifth in the three years in which the Conservative Party has been in office, and there has been a catastrophic fall in industrial investment year on year. I do not know whether there is any serious evidence that industrial investment will pick up in 1982.
Bankruptcies are running at a record rate. A short time ago it was reported in The Guardian that the figures were at an all time high. In 1980 our gross national product fell by 2 per cent. In 1981 it fell by a further 2 per cent. and it is now said that there may be a modest increase of 1·5 per cent. In other words, there have been four strides back and possibly one or one and a half faltering steps forward.
One serious indictment of the Government is that although major industrial firms find themselves in trouble every day, reporting lower profits or collapsing altogether—as is the case in Sheffield—and although that has been happening for two or three years, the banks are recording record profits. Indeed, so high were their profits that even the Government had to introduce a special windfall tax. The state of affairs was so grotesque that the Conservative Benches would not tolerate it. Ultimately, the mass unemployment that has been directly generated by the Government's policies must be the most serious indictment.
To the extent that the national insurance surcharge is a tax on jobs—as the CBI has argued—a lightening of that burden will be welcomed if it has a serious effect on mass unemployment. The reduction proposed by the Government does not go far enough. Indeed, I am not sure whether our amendment goes far enough. Nevertheless, it is clear that with more than 3 million out of work and looking for jobs which, for the most part, do not exist, there is no case for retaining a severe payroll tax on industry, which represents a burden of £1 billion or £1·5 billion.
In Sheffield alone, unemployment has trebled since the Conservative Party took office. In May 1979 unemployment stood at about 4 per cent., or about 12,000 people. The figure was far too high even then, but it has now

increased to 12.6 per cent. and nearly 37,000 are unemployed in Sheffield. To the extent that the national insurance surcharge contributes to that and makes it more difficult for industry to take on workers, there is a powerful case for reducing it, or abolishing it altogether.
The industrial collapse and the calamity that have hit British industry in the past three years must be attributed directly to Government policy. We have seen a sustained, deliberate regime of high interest rates—which are still high despite the slight reductions in the past few months—that discourages the investment and borrowing necessary for a modern industry. The outflow of capital has been deliberately encouraged by the removal of exchange controls, and in the past few years since their removal billions of pounds have flowed out of the country and created jobs overseas. The money should have been invested in the United Kingdom, thus creating new jobs for our workers.
It is a common complaint that industry will not invest, develop or expand unless it can see markets for its products. That argument is not unreasonable, but where will those markets come from while the Government continue to pursue a savage and classic deflationary policy, although dressed up in the fancy nomenclature of supply economics, monetarism and so on? For the past three years the Government have been pursuing the deflationary policies of which the country, alas, became all too aware in the inter-wars period and which applied in the post-war period with precisely the same effects as now, of falling output and investment and a massive rise in unemployment.
It is interesting to note that the same policies, applied by President Reagan and his Administration, are producing the same effect and will have a catastrophic result in the coming months and years on the world economy. Indeed, the Common Market countries are profoundly worried by the American Administration's behaviour. That is not surprising, because the course of America's economy has become the mirror image of that being followed by this Government in deflating our economy, in destroying industrial output and British industry, and in making it more difficult for firms to survive.
In addition to modifying or doing something about the national insurance surcharge, one might have expected the Government to take other steps to relieve British industry's problems, but, far from doing that, they have imposed extra burdens. The crackpot sick pay scheme is completely unnecessary and will create administrative difficulties for industry. It will place extra burdens on administration, will require extra pay calculations to be made, and will lead to further difficulties for personnel departments. The small businesses about which the Government pretend to be concerned will be worst hit.
It could be argued that organisations such as the Central Electricity Generating Board, the British Gas Corporation, ICI and Ford have computerised arrangements to deal with sick pay for those who are off work for a few weeks. Small businesses, however, will not have the capacity to handle the problem efficiently without extra paper work, extra difficulties and possibly arguments if there are problems about entitlement to sick pay and the length of time that someone is off work. All that, for what purpose? The Government have not given any rational reason for removing the payment of sick pay from the accepted State administered system, which has worked for decades, and


placing an extra administrative, complex burden on industrialists. There is no benefit to the worker or to industry.
The same story can be told about training. To achieve the same amount of training as in the past 10 or 15 years—under legislation introduced by Conservative Governments—greater efforts will have to be made by private industry to replace the mechanism and administrative effort of the industrial training boards. They are largely being destroyed. Industry will either have to carry extra burdens and administrative work and replace the effort made by the training boards, or training will slump disastrously. The latter is the more likely. Given the arrangements for sick pay and training, extra burdens, complications and difficulties are being created for industry. In the light of the CBI representations on the national insurance surcharge and related matters, I should have thought that the Government would want to make industry's path easier.
The remedies for our industrial ills lie in two directions. First, there must be encouragement for a sustained high level of investment in capital, plant, research and marketing. It is often assumed that investment involves simply putting in new machinery, but the most important investment is sometimes that in research into new products and their marketing.
One of the curiosities of the Prime Minister's speeches about competitiveness is that she does not seem to recognise that in modern industry competitiveness is not a question of cutting wages and forcing down living standards. The most competitive countries in the world, including West Germany, the United States, Sweden and to some extent Japan, have not forced down wage levels, and their competitiveness has depended on sustained high levels of industrial investment. In this country the prospects for such investment have been damaged and almost destroyed by the Government's policies on interest rates, energy costs and so on.
It may be argued that, whatever we do on taxation and charges such as the national insurance surcharge, industry cannot be compelled to expand or invest if it decides that that is not worth while. In that case, the alternative strategy is sustained and massive investment in the public sector—in public corporations, local government, housing and over a wide range of necessary and productive operations that will not only create jobs, but increase our national wealth and general standard of living.
There are enormous possibilities in public investment. It is not public spending in the crude sense—not the spending of taxpayers' money for the sake of it—because public corporations, local government and so on are major customers of private industry. Local government purchases about £6 billion worth of goods and services a year from the private sector. If local government activities are expanding, that will be of direct benefit to the private sector, because the demand for its goods and services will also increase.
A curiosity that I have not seen resolved by economists is that, although we talk of expenditure on housing as if it is public expenditure, most of the activity takes place in the private sector, because much house building, even municipal housing, is carried out by private contractors. Therefore, an expansion of the housing programme will be of direct assistance to the private construction industry.

The House-Builders Federation has made that clear in numerous documents that it has sent to me and, no doubt, to other hon. Members.
In terms of competitiveness, which the Government continually say needs to be increased, and stimulating overall economic activity, there is a powerful case for public investment, which will not only assist the public sector, but will be of direct and immediate benefit to the private sector.
The national insurance surcharge is a tax on jobs and should be abolished, but I am not sure that even that will solve our industrial problems. That will require a fundamental and drastic change in the overall economic strategy.

Mr. Brittan: Clause 128, which various sections of the Opposition have sought to amend, gives effect to one of the central proposals of the Budget. As my right hon. and learned Friend the Chancellor of the Exchequer made clear in his Budget Statement, our prime purpose this year is to help private commerce and industry to help itself, by cutting its costs.
Our proposal on the national insurance surcharge is in the mainstream of that policy. It has been widely welcomed as the one measure which industry wanted most. It should directly reduce the costs of employing labour in the productive private sector by about £640 million in the current year. It is the largest single measure announced in the Budget to reduce industry's costs.
The clause is designed to reduce the rate of the surcharge from 3½ per cent. to 2½ per cent., with effect from 2 August 1982, and it provides for an extra reduction of half a percentage point in respect of liable earnings paid on or between 2 August and 5 April 1983. In all, it will provide employers during 1982–83 with broadly the equivalent benefit as they would have gained if a I per cent. reduction had been in force throughout the current year.
The reduction in the surcharge is the largest single measure in the Budget to assist industry, but the right hon. Member for Stepney and Poplar (Mr. Shore), who is not in the Chamber, did less than justice to the Budget by seeking to denigrate and minimise the impact, effect and importance of some of the other measures put forward by my right hon. and learned Friend the Chancellor of the Exchequer.
I will list only some of the more important measures announced in the Budget. Small firms and enterprise are being encouraged for the third successive year, the construction industry can expect to benefit in the current year from tax and expenditure measures totalling about £240 million and industry's fuel bill will be reduced by more than £160 million as a result of the measures announced by my right hon. and learned Friend on gas and electricity prices.
I believe that, overall, the Budget achieves the right balance between across-the-board assistance, in the form of the reduction in the national insurance surcharge, directed towards reducing the cost of employing labour, and specific measures to assist industry. The balance is correct, but we are concerned not only with balance, but with the total extent, and the extent of the reduction of the national insurance surcharge is the subject of clause 128.
Of course it is possible for right hon. and hon. Gentlemen to mention figures of assistance to industry,


whether in the form of a reduction in the national insurance surcharge or any other form, which would be more substantial and include larger figures than those put forward by my right hon. and learned Friend in his Budget Statement. Naturally it sounds more attractive and a greater assistance if bigger figures are mentioned. But the Government's strategy does not seek to lead us out of our present difficulties by way of reflating to the maximum possible extent.
In a recent debate the right hon. Member for Stepney and Poplar, who apparently cannot be with us, was candid enough or was prised open enough to admit that there was no limit to the amount of borrowing and that, therefore, it was open to him to suggest a figure, whether £8 billion or more, of extra money which could be borrowed to finance extra public spending, extra cuts in taxation or anything else one would care to mention. One felt inclined to ask, if borrowing was not a constraint and did not matter, why stick at whatever figure the right hon. Gentleman last alighted on in his competitive bid to reflate the economy in a painless way?
The truth is that there are constraints, there is a price to pay and there is such a thing as a proper balance. The borrowing on which the Government embark, which derives from the combined effects of what they spend and the revenue they receive, must be funded and the effect of that funding is crucial for interest rates. If it is not adequately funded, the impact on inflation is likely to be substantial.
We do not accept that there are no such limitations. It is a matter of judgment exactly how far one goes, but a general balanced packet of measures on a scale which would not impose excessive strains on interest rates was the right one.
The right hon. Member for Stepney and Poplar made much of the circumstances in which the national insurance surcharge was introduced by the Labour Government. I agree with my hon. Friends who said that it does not lie in the mouth of any member of the previous Government to complain about the national insurance surcharge and to call for its reduction. It will not do for the right hon. Gentleman and Labour Members to say that it was all right to introduce the national insurance surcharge at 2 per cent. and increase it to 3½ per cent. because at that time Britain's competitiveness was better and the exchange rate was different from what it had been.
The right hon. Gentleman failed to answer—and he was not prepared to give way when I tried to put it to him a third time—a simple point which must follow from that line of argument. No one has sought to defend the tax. No one has sought to suggest that it is anything other than an increase in costs for industry. No one has sought to suggest that it does anything but make employment levels lower than they otherwise would be. In effect, the right hon. Gentleman said that none of that mattered because the level of the pound was different from what it is today. I would have preferred to say in the presence of the right hon. Gentleman that that is an absurd allegation.

Mr. Robert Sheldon: I apologise for the absence of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). He went to a meeting and was not aware that the debate was likely to come to such an early end.

Mr. Brittan: I hear what the right hon. Gentleman says on that point. The argument of the right hon. Member for Stepney and Poplar is absurd. If he says that the tax is a bad tax, that it increases costs and does harm to employment, he cannot suggest that it was appropriate to introduce it in April 1977 and to increase it in October 1978.
If we examine the relevant years, we see that from the first quarter of 1974 to the second quarter of 1977 unemployment increased from 621,000 to 1,450,000. It had more than doubled. Whether it was likely to go down slightly as it did, that was the legacy and the record that the then Chancellor of the Exchequer faced in April 1977. Unemployment had doubled. That was regarded by the Labour Government as a serious matter. At that moment to proceed to put a tax on employment in the form of the national insurance surcharge was completely indefensible. If it did not stop unemployment going down slightly, on the argument that the right hon. Member for Stepney and Poplar has put to the Committee today, it must have prevented if from going down more.
Therefore, according to any view of the situation, the fact that the right hon. Gentleman thinks that the relevance of the different levels of the pound is so important does not justify putting a massive tax on the employment of labour as the Labour Government did in 1977; still less does it justify what happened in October 1978 when the Labour Government increased the tax.
The figures between the second quarter of 1977 and the fourth quarter of 1978 show that cost competitiveness, which is what matters, declined by about 14 per cent. Therefore, faced with the decline in cost competitiveness, what did the Labour Government do with a tax that their current spokesmen regard as representing an increase in costs and as undesirable? They virtually doubled the level of the national insurance surcharge. [Interruption.] I know that it is painful for Opposition Members to have those facts thrust down their throats.

Mr. Austin Mitchell: It is history.

Mr. Brittan: It is history but it is history that denies the Opposition any jot or tittle of right to complain about the inadequacy of the reduction in the surcharge introduced by my right hon. and learned Friend.
I shall refer to some of the specific points that the right hon. Member for Stepney and Poplar raised with regard to the tax and its reduction before I come to the question whether it would be feasible—or desirable—to make the changes that are suggested in the amendment. The right hon. Gentleman alighted upon the clawback. I am not ashamed or embarrassed in any way by the clawback because I believe that it was absolutely justified. It involved a saving to the Exchequer of over £300 million, which made it possible to give assistance to industry that otherwise would not have been possible. To concentrate this assistance on the private productive sector of industry was absolutely right.
The right hon. Gentleman said that the Government consistently discriminated against nationalised industries or were hostile to them. The position of the nationalised industries is simple. They will have their national insurance surcharge reduction in the same way as anyone else. The effect is that their costs will be reduced and their borrowing needs as a result will be lower than they would have been otherwise. Their external financing limits will be reduced to reflect that.
What those who seek to say that there has been discrimination against the nationalised industries fail to recognise is that the control of nationalised industries is control of borrowing. If there is a reduction in the need to borrow, it is right that there should be a reduction in the amount that those industries are permitted to borrow.
I cannot say that the record of the nationalised industries in the handling of pay, for example, is such that——

Mr. Peter Bottomley: indicated assent——

Mr. Brittan: I see my hon. Friend nodding. I cannot say that the industries' record makes one feel that one should make a special exemption—which is what it would be—in the face of the consequences in the public sector of a reduction in the national insurance surcharge.

Mr. Richard Wainwright: Will the Chief Secretary assist the Committee further—first, by giving any estimated figure for the nationalised industries that will benefit from the reduction that will be clawed back and, secondly, by saying for how many years he expects the process of clawback to go on?

Mr. Brittan: On the hon. Gentleman's second point, with regard to the measures announced in respect of the coming year, as with all fiscal measures, what we do in future years remains to be seen. With regard to the approximate extent of the nationalised industries' benefit, the figure that comes to mind off the cuff is £100 million to £120 million—about one third of total public sector clawback.

Mr. Shore: I apologise to the right hon. and learned Gentleman for not being present at the beginning of his speech. May I press him on his reasoning about not making the reduction available to the public sector? He has given some explanation of his reasoning about nationalised industries, in so far as they are borrowers from the public purse. I am not sure how far that argument stands up with regard to those nationalised industries that are not borrowers but contributors, such as British Gas and British Telecom.
Can the right hon. and learned Gentleman enlighten us on how he relates that doctrine to companies in the public sector? Some of them, such as British Leyland, are borrowers, as we all know. Have they also had benefit withdrawn? Is the case the same with BNOC and others?

Mr. Brittan: The answer is simple. Those firms that are treated as being within the public sector borrowing requirement are receiving the treatment and those that are not within it are not. The right hon. Gentleman will know that some companies, such as British Leyland, are not treated as being in the public sector borrowing requirement for national accounting purposes because the external financing limits do not apply to them. Government assistance is given in a different form.
I turn now to the suggestion that there should be a larger or a total reduction. It is a question of the general financial framework within which one must operate. The proposed abolition of the national insurance surcharge would cost a further £1½ billion in the current year or £3 billion next year. Even the more modest reduction of a further 1 per cent. that is advocated by the Opposition would cost an additional £1 billion in 1982–83, rising to nearly £2 billion next year. I know that the Opposition are not fond of

running tallies, but it must be pointed out that these proposals come on top of Opposition amendments to clauses that have already been debated. Before this, Labour spokesmen have urged the Government to adopt amendments that would cost some £3¼ billion in a full year.
I concede that the Liberal and Social Democratic Parties have not scored such a high tally in the proposals that they have advanced. Nevertheless, Opposition Members who are proposing so substantial an increase can only do so within the context of a suggestion that the limitation of borrowing does not matter. That has been suggested frequently by the right hon. Member for Stepney and Poplar, but I and my right hon. and hon. Friends regard it as wholly unacceptable.
Reference has been made to the change in the estimate of the public sector borrowing requirement for 1931–82 that occurred between the publication of the Red Book on Budget day and 22 April. Those revised but still approximate figures were published and showed a PSBR lower by some £2 billion.
A number of propositions deriving from that have been advanced. The first is that if one gets it wrong by £2 billion and if one got it wrong by several billion in the other direction the previous year, the whole thing is not worth bothering about and we should ignore the public sector borrowing requirement. The second is a slight variant on that. It is not that we need not bother about the PSBR, but that in some sense we can carry forward and spend an extra £2 billion the following year.
I suggest that neither proposition stands much scrutiny. First, it has always been known by anyone who tries to be even mildly versed in these matters that with a residual such as the public sector borrowing requirement between two extremely large amounts the accuracy of any estimate is bound to be limited. The right hon. Member for Stepney and Poplar smiles and nods, for all the world as though that were a revelation. If it is a revelation to the right hon. Gentleman, I can only say that it is for want of reading the Government's own publication, the Financial Statement and Budget Report, which not only refers to the fact that there can be discrepancies but actually quantifies their average size. That being so, simply to say that the whole thing does not matter is not a rational response.
The alternative proposition, that the PSBR matters but that there is £2 billion to spare, is also not a correct analysis. One must first examine the estimate of £9½ billion for the PSBR for 1982–83. I accept that there are those who believe that on any view that is too low a figure. The argument for a change in the estimate, however, at least takes it for granted that £9½ billion might be the right figure but suggests that a change should still be made because of the reduction in the 1981–82 figure. That does not follow unless one believes that the present estimate will be proved fallacious. Although, as has been made clear, the exact components of the £2 billion reduction in the PSBR reported on 22 April as the latest estimate have not yet been analysed, the information that we have provides no evidence or reason to believe at this stage that the £9½ billion estimate will prove to be too high.

Mr. Campbell-Savours: That is even worse.

Mr. Brittan: Whether that proves to be the case will depend upon the factors that led to the reduction in the borrowing requirement in 1981–82.
I give one illustration. Clearly there is a difference if we are talking about genuinely higher tax receipts rather than merely about the timing of expenditure payments as between late March and early April. Therefore, to say at this stage that there will be less borrowing than is anticipated in the £9½ billion estimate is not justified. Certainly it is not a basis for changing the central decision in the Budget relating to relief for industry—the national insurance surcharge reduction.

Mr. Robin F. Cook: I am sure that every member of the Committee will agree that it would have been much more valuable had we discovered the undershoot during the year 1981–82, when it would have been possible to take advantage of the underspending that happened then. Is the Chief Secretary really saying that there are no savings from that underspending, not even in respect of presumably reduced interest payments which will occur in respect of that financial year and which are now available for this year?

Mr. Brittan: No. I am saying that in 1981–82 there was indeed a reduction which was not apparent, compared with the original estimate of the public sector borrowing requirement. That came to light only in recent weeks. That is true, but it does not mean that one has something that one could take advantage of by spending more or taxing less for 1982–83, because we are concerned with the amount of money that we will have to borrow in 1982–83. That is what has to be funded, and if it is not funded it will lead to the increase in the money supply and inflationary pressures resulting from that.
It is for those reasons that I say to my right hon. and hon. Friends that I see no reason to alter the basic judgment of the Chancellor of the Exchequer that, within the context of a Budget designed to assist industry, not by massive reflation but by a responsible degree of assistance, consistent with the total level of assistance, the balance that has been set is the right one. I therefore advise the Committee not to accept the amendment.

Mr. Robert Sheldon: We have had a good debate. It is interesting to note that all who have spoken have agreed with the amendment, and it will be interesting to see how many will actually vote for the amendment to which everyone seems to be speaking. My hon. Friends the Members for Walsall, North (Mr. Winnick), for Workington (Mr. Campbell-Savours), for Stockport, North (Mr. Bennett), and the hon. Members for Rutland and Stamford (Mr. Lewis), for Chippenham (Mr. Needham), for Bath (Mr. Patten), for Gateshead, West (Mr. Horam), for Colne Valley (Mr. Wainwright) and for Cardigan (Mr. Howells) all agreed with the amendment, and no one spoke against it.
The refuge that the Chief Secretary took in opposing the amendment was twofold: first, that as the Labour Government introduced the change we could not speak against it, even in circumstances which five years later are manifestly different from those which attended its introduction; and, secondly, that as we had proposed a number of other amendments to the Finance Bill which would cost money, it would be impossible to carry out this policy because it would involve spending all this money. The right hon. and learned Gentleman has used that

argument frequently. I must take him up on it, because it is becoming a bit of a bore, and he is failing to convince even his so-called supporters on the Benches behind him.
The Opposition do not have the choice of a Finance Bill. It is not for us to devise one. We have to take the one that the Government provide for us. We do not even have a choice of altering it to suit our priorities—taxing a little more here and taxing a little less there. The reason is that we, as an Opposition, cannot propose increases in taxation. However, by various amendments we can show our priorities and try to obtain, not our legislation, but a form of legislation which is a little closer to that which we wish to achieve.
The point was put best by Iain Macleod, speaking as an Opposition spokesman. I recall it well, because he set out the matter clearly and fairly in the Finance Bill Committee on 13 May 1969, when he said:
The question of cost is always an inevitable problem for Oppositions. An Opposition of any party, in putting their point of view before the House in any year, would put forward commitments which they recognise in total are more than they could meet if they were in power.
It is only fair to make that point, and it is not made for the first time. But it is right to press individual points one by one.
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He went on to say:
I am not committed to the Chancellor's approach in the Budget any more than I am committed to his arithmetic, but if I were faced by a position in which I wanted to make the sort of reduction which I am now commending to the Committee, I would have preferred … a switch"—
that is, to obtain the money in other directions.
I think that is an honourable answer to the question of cost, which is always a difficult one for an Opposition."—[Official Report, 13 May 1969; Vol. 783, c. 1285.]
To save time, if the right hon. and learned Gentleman makes the same point, may I take this rebuttal as read?
The hon. Member for Rutland and Stamford said, and everybody who spoke subsequently agreed, that the national insurance surcharge is a tax on jobs and has many disadvantages which offset any advantages that a Chancellor of the Exchequer may find in it. It has two features that have made it attractive to Chancellors of the Exchequer, both Labour and Conservative. The first is that it is an easy tax to impose and a cheap tax to collect. The legislation is simple, quick and certain. The amounts of revenue raised can be calculated easily and with accuracy and a few lines in the Finance Bill produce revenue immediately.
The other advantage is that it has little short-term effect on the retail price index. It takes time to work its way through the price of any article that it affects—time that can extend up to 18 months.
We know the disadvantages of the surcharge. They include the fact that it is imposed upon exports but not upon imports. There is no system, nor can one easily be devised, for rebating the tax on exports, and the tax does not affect imports, which have no employment costs in them. It is in that respect the very reverse of value added tax, which is charged on imports and there is relief on exports.
The surcharge is also harsh in its effects on the manufacturer. In the payment of value added tax, several months are allowed for settlement for each quarterly return after the goods are sold. The surcharge, on the other hand, has to be paid immediately, frequently well before the product is made, let alone sold. Whereas value added tax commonly helps cash flow—the trader normally


accounting for value added tax after receiving payment from his customer—the national insurance surcharge is usually made before payment is received, and for many manufacturers long before it is received.

Mr. Richard Wainwright: The right hon. Gentleman is right in saying that, with comparative legislative ease, enormous sums are raised by the surcharge. He spoke of its all being done by a few lines in the Finance Act. Does he agree that there had to be a National Insurance Surcharge Act in 1976 to set the whole thing in motion?

Mr. Sheldon: I am talking about increases subsequently and even the reduction that we are seeing in the Finance Bill tonight. The question that we ought to ask ourselves is why successive Governments accepted this particular tax. The situation in 1966 and 1967 was as described by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). Industry at that time was very competitive and it had a number of advantages, not the least of which was the introduction of stock relief and the fact that so few companies were paying corporation tax. Therefore, the burdens upon industry were far different from burdens that industry is facing today.
Also, at that time it was becoming widely understood that our European employer competitors had substantial payments to make for the social services enjoyed by their employees. In the United Kingdom, on the other hand, most of the social services were being paid for through general taxation and it was felt that this modest move would raise the necessary revenue. Revenue is largely what it is about, and the surcharge was introduced long before North Sea oil added £6 billion to the revenue enjoyed by the right hon. and learned Gentleman the Chancellor of the Exchequer. The burden on industry then was far less then than it has now become. In particular, the terrible agonies of British industry which now need to be relieved were not felt at that time. The agonies can be reduced by the means proposed in the amendment.

Mr. Brittan: If that is so, will the right hon. Gentleman explain why in 1978 his Government almost doubled the rate of the national insurance surcharge, when between its introduction and the near doubling cost competitiveness had declined by about 14 per cent.?

Mr. Sheldon: The right hon. and learned Gentleman seems unable to grasp the fact that industry was not screaming out in the way that it screamed out to the Chancellor of the Exchequer in Birmingham only a few days ago. I shall deal with the way in which the Government are being looked at by their former close friends in industry.
The particular problem is that of the nationalised industries. The advantages that are being given, or the disadvantages that are being removed, apply to the private sector. The private sector will be able to take on more employees if it improves its finances, but the public sector, if the proposal were not reversed by means about which the Chief Secretary has told us, could be in a similar situation. It would be able to take on more employees and improve its finances in the same way as the private sector. The only possible conclusion is that this is one more instance of the venom that the Government have for the nationalised industries.
The Chancellor said in his Budget Statement that this was a Budget for industry and jobs. I wish that he had

thought about jobs and industry three years ago. We might then not have had the Budgets of 1979, 1980, and 1981, which were anti-industry and jobs. They were the Budgets that brought about the 3 million unemployed, and a decrease in industrial and manufacturing productivity of 16 per cent. Three years ago the Chancellor was thinking not about a Budget for industry and jobs, but about money supply and the way in which its control would cure all our ills.

Mr. Campbell-Savours: My right hon. Friend should be addressing the right hon. and learned Member for Cleveland and Whitby (Mr. Brittan). It is interesting to note that in his constituency unemployment has gone up in those precious three years from 10·4 to 23·6 per cent. It is interesting that the Chief Secretary should conduct his case from the Dispatch Box in the way that he has done today.

Mr. Sheldon: I must bow to the knowledge of my hon. Friend on industrial matters and employment in the constituency of Cleveland and Whitby. Those who have seen unemployment rise in this way have a great deal of responsibility for the actions that they took to help bring it about.
Three years ago the Chancellor thought that control of the money supply would lead to the control of inflation. Therefore, we had the money supply expanding at the rate of 56 per cent. and manufacturing industry contracting at the rate of 16 per cent. I must ask what the soothsayers of money supply say about that. Professor Patrick Minford was one of the two economists who only a few weeks ago was praised by the Prime Minister at Question Time. He has come up with his solution to our economic problems. After mentioning the money supply and dealing with it as the solution to our problems, he is turning his attention to the Monopolies and Mergers Commission and asking that it should examine trade union practices. That is the latest outpouring from one of the right hon. Lady's economists.
Another of those econornists who believed in money supply, Professor Milton Friedman, was not praised by the Prime Minister. I assumed that it was an oversight. It took me some time before I found out why her favours had been withheld. I thought that it was accidental, but I discoverd that he had said on 16 February that the
performance of the British economy under Mrs. Thatcher's rule had been terrible.
That is no surprise to anyone here. He then went on to say that Ministers were to blame for much of the increase in unemployment that had taken place. All those people who supported the policies on which the Government came to office are deserting the Prime Minister one by one. The right hon. Lady has not even a hard core left, unless it is Dr. Walters in her office.
We cannot fail to respect the distinguished speech ma de by the hon. Member for Chippenham. The hon. Gentleman pointed out that the Front Bench should do less cajoling, less lecturing, and listen more to what is going on in the real world. We find that the wets, Labour Members, even the monetarists, are all united in condemning the economic management of Britain.
In his Budget speech the Chancellor of the Exchequer said that it would be a Budget for industry—a Budget for jobs. The House rightly welcomed the way in which, after three years of Tory misrule, he had started to turn his attention from nonsense to fact, from fetish to reality. The reality is grim enough. On 25 February Sam Brittan said:


Now look at manufacturing. Here the word 'slump' or even 'depression' seems more appropriate than 'recession'''
With levels of manufacturing output down 16 per cent., I do not think that he overstated the case.
The continuous miserable optimism that we hear from Treasury Ministers, which has been sustained since January last year, is treated with derision in the regions of Britain. The Chancellor's expectation for the future is met with contempt. He encountered that first-hand when he spoke to the Birmingham chamber of commerce in the presence of the president of that organisation. On 27 April 1982 the Financial Times reported:
Mr. John Black, President of the Chamber, said Government policies were the main reason for the failure of many well managed companies. The loss of capacity could lead to a surge of imports once demand improved. It appears here in the Midlands that people in the South-East, and that includes Members of Parliament"—
he must have been referring to Conservative Members of Parliament—
really have little idea of what is happening in Birmingham and how extremely serious the situation is. Recession was severe. Unemployment had doubled in the West Midlands in the past 12 years. The Chamber's membership of more than 4,000 companies was largely small companies of which 70 per cent. employed fewer than 50, just the ones this Government is supposed to help. They had put the Government in office but were asking what it was doing for them.
The answer is "Nothing at all". The article continues:
There was pleasure at Government efforts to reduce inflation, but nevertheless, however much we recognise the need to achieve that objective, the determined inflexibility with which this has been pursued at a time when world demand has been seriously curtailed, has had a disastrous effect on companies in the Midlands. Many old established, well-run and properly managed companies have gone for ever. I make no apology for saying that it was not necessarily because their products or marketing strategy were bad, but rather they failed to a major extent as a result of Government policies. The Government might create a leaner, fitter industry but Mr. Black wondered where the big companies would turn for the small but essential subcomponent products once the economy picked up. He told the Chancellor it was right to refer to the large number of companies coming into being, but this was no more than a reflection of what happened in previous recessions. Such companies could not meet requirements of larger ones in an economic boom.
That is about as strong an indictment as one can get from someone who speaks on behalf of small companies. He is not alone in this. Hamish MacDonald, the retiring president of the Manchester chamber of commerce, whom I know well, has said much the same thing. I have been able to quote him in the past.
Today we have heard that the CBI see the Government's optimism in precisely the same light. According to the tape, it said:
In stark contrast to optimism from the Government about an economic recovery, the CBI says in its survey published today that there is still no evidence of any noticeable recovery in activity being under way. Demand is stagnant. Nine out of 10 firms are short of orders.
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It is a wretched business when the Chancellor of the Exchequer and others carry on making speeches of the kind referred to by the hon. Member for Chippenham, lecturing everybody in the House and outside, when everybody outside the House and most people within it know what is happening in the various regions of the country and that the position is not in accordance with what the Government are saying. The Government have

been talking about the upturn since January of last year, when the then Financial Secretary said that the corner had been turned. We have been waiting for it ever since.
As we know, good small firms are closing down—firms which deserve to continue. The Chancellor of the Exchequer ought to find no solace in the fact that small firms in the Midlands, frequently employing about 50 people, are closing down and being replaced by someone encouraged by the Chancellor of the Exchequer and having a flyer with his redundancy money.
A number of firms are setting up to sell machinery overseas. According to the Financial Times of 9 March 1982:
The flood of second-hand machine tools resulting from the recession in Britain has provided a rich source of exports for Hulberts, a family-owned West Midlands company, which specialises in reconditioning machinery before selling it abroad.
That is what is happening. There is a growth of new organisations setting up to demolish and strip factories of machinery for which no use can be found here but which finds a ready sale overseas. These are not old or inefficient companies selling their old machinery for junk. They are companies which ought to be thriving, but which are selling their expensive modern equipment to firms in other countries which are more able to make use of it than can be made of it here under the present Administration.
What makes the national insurance surcharge reduction so necessary is the mood of unease which is marching across British industry and is reflected in the comments of those whom I have quoted.
One of the keys to recovery is investment. In this respect the Chancellor of the Exchequer is right. Investment in manufacturing industry ought to be higher. I am not sure what investment is recorded by the figures produced nowadays. Pub decorations have been defined by the courts as "plant and machinery". That is nonsense, and it needs to be put right at some stage.
It is not only with the poor level of investment about which we should be concerned. In a stagnant or declining economy, plant is frequently purchased to improve efficiency without increasing output. The extra goods cannot be sold, so the investment provides not further expansionary opportunities but an increase in unemployment. That leads to the basic dilemma in industrial life under a Conservative Government.
How can we get companies to buy more machinery, which needs more people to work it, if the first and major preoccupation of companies is to preserve their very existence? How do we get full employment without an expansionist economy, without expansion-minded firms? What happens instead is that hand in hand with mismanagement go collapsed expectations.
It may be that the engine of confidence provided the major industrial expansions in the post-war years. In terms of industrial decline, the damage done to those expectations is greater than any we have ever known. The feeling that persisted until recently was that we were a vigorous country with expanding industry, sure of itself, able to plan and to create the wider opportunities ahead. The recreation of that confidence will be one of the greatest tasks facing any Government. To recreate the mood of expansion in a people who have retreated into caution and doubt is a major task of Government and one that this Government have failed even to recognise.
We shall be voting for our amendment tonight because we believe that it is one of the most important ways of


helping to reduce unemployment. We regard it as a priority that overrides all others in our national life. For us "priority" is what the word means—a policy for reducing unemployment which comes before all others.
It is now clear that the Labour Party is the only party represented in the House which seriously believes in the commitment to return to full employment. It was a Liberal, William Beveridge, who, in his report "Social Insurance and Allied Services", published in November 1942, made his assumption the maintenance of employment, but it was Arthur Greenwood who, as Labour Minister without Portfolio, set up the Committee under Beveridge, and it was Sir William Jowitt, the Labour Paymaster-General—one of my many distinguished predecessors as Member of Parliament for Ashton-under-Lyne—to whom the report was submitted.
In that monumental report, which established the structure of the Welfare State, Beveridge's central assumption was the maintenance of high employment. He said that the Welfare State proposals would be impractical if they had to apply to men unemployed by the million or even by the hundred thousand. His second assumption was that the only satisfactory test of unemployment is an offer of work. That test breaks down in mass unemployment. A further assumption of the Welfare State was that there should be an announced determination to use the powers of the State to reduce unemployment, and he pointed out that the worst form of waste—even worse than overmanning in the Civil Service or elsewhere—was unemployment.
Finally, Beveridge pointed out that it should be possible to end unemployment lasting for more than 26 weeks. That was in 1942. That led to the full employment White Paper of 1944, which has been repudiated by the Conservative Party and modified by other parties. It is a great shame to them and a dishonour and disservice to the nation that such an important commitment should have been withdrawn at such a critical stage in our national life.
We have had many distinguished speakers in the debate, but I must select the hon. Member for Chippenham, who called for less oratory, less cajoling and less lecturing from the Front Bench. He asked Ministers whether they knew what was happening in industry today. The hon. Member for Bath said that we should look to jobs, prices, output and to real things that we can measure, not to something that forms part of the Government's theology. The hon. Member for Rutland and Stamford had his doubts as to what the Front Bench knew about industry and what is happening today.
The position today is that many people, even Tory industrialists, now realise that nothing—literally nothing—good can come from the Government's policies to counterbalance the horrifying damage to industry recklessly carried out by the Government. No one, however malicious, could have done more harm to our industrial structure, and the damage that is being done to British industry is without parallel. In those circumstances, the amendment, further to reduce the national insurance surcharge, is a necessary requirement for which we shall be voting tonight.

Question put, That the amendment be made:—

The Committee divided: Ayes 82, Noes 140.

Division No. 137]
[9.10 pm


AYES


Alton, David
Archer, Rt Hon Peter


Anderson, Donald
Atkinson, N.(H'gey,)





Beith, A. J.
Kerr, Russell


Bennett, Andrew(St'kp'tn)
Leighton, Ronald


Booth, Rt Hon Albert
Lewis, Ron (Carlisle)


Brocklebank-Fowler,C.
Lyons, Edward (Bradf'dW)


Brown, Ronald W. (H'ckn'yS)
McDonald, DrOonagh


Callaghan, Jim (Midd't'n&amp;P)
McKay, Allen (Penistone)


Campbell-Savours,Dale
Maclennan,Robert


Cartwright,John
Magee, Bryan


Clark, Dr David (S Shields)
Marks,Kenneth


Cocks, Rt Hon M. (B'stolS)
Millan, RtHonBruce


Concannon, Rt Hon J. D.
Mitchell, Austin(Grimsby)


Cook, Robin F.
Mitchell, R. C. (Soton Itchen)


Craigen, J. M. (G'gow, M'hill)
Morris, Rt Hon C. (O'shaw)


Cryer.Bob
Oakes, RtHon Gordon


Cunliffe,Lawrence
Penhaligon,David


Dalyell, Tam
Race, Reg


Davis, Terry (B'ham, Stechf'd)
Roper,John


Dean, Joseph (Leeds West)
Sheldon, RtHon R.


Dormand,Jack
Shore, Rt Hon Peter


Dubs,Alfred
Skinner,Dennis


Dunn, James A.
Snape, Peter


Eadie,Alex
Soley,Clive


Eastham, Ken
Spriggs, Leslie


Ellis, Tom (Wrexham)
Stoddart,David


Evans, loan (Aberdare)
Straw,Jack


Fitch,Alan
Wainwright,E.(DearneV,)


Fitt,Gerard
Wainwright, R. (ColneV)


Foster, Derek
Walker, Rt Hon H.(D'caster)


George, Bruce
Watkins, David


Grant, John (Islington C)
Wellbeloved,James


Hamilton, W. W. (C'tralFife)
Welsh,Michael


Harrison, RtHonWalter
Whitlock,William


HomeRobertson,John
Williams, Rt Hon Mrs (Crosby)


Homewood,William
Wilson, Gordon (DundeeE)


Horam,John
Winnick, David


Howells,Geraint
Wrigglesworth,Ian


Hoyle, Douglas
Young, David (BoltonE)


Hughes, Robert (Aberdeen N)



Hughes, Roy (Newport)
Tellers for the Ayes:


Jenkins, Rt Hon Roy (Hillhead)
Mr. George Morton and Mr. Frank Haynes.


John,Brynmor





NOES


Aitken,jonathan
Dean, Paul (NorthSomerset)


Alexander,Richard
Dover,Denshore


Ancram,Michael
Dunlop,john


Arnold,Tom
Dunn, Robert(Dartford)


Aspinwall,Jack
Fairgrieve,SirRussell


Atkinson, David(B'm'th,E)
Faith, MrsSheila


Baker, Nicholas (N Dorset)
Fenner, Mrs Peggy


Banks,Robert
Fletcher-Cooke,SirCharles


Beaumont-Dark,Anthony
Goodhew,SirVictor


Bendall,Vivian
Goodlad,Alastair


Benyon,Thomas(A'don)
Gow, Ian


Berry, Hon Anthony
Griffiths, E.(B'ySt.Edm'ds)


Best,Keith
Griffiths,Peter Portsm'thN)


Bevan,DavidGilroy
Gummer,JohnSelwyn


Biggs-Davison,SirJohn
Hamilton, HonA.


Blackburn,John
Hamilton, Michael(Salisbury)


Boscawen,HonRobert
Haselhurst,Alan


Bottomley, Peter (W'wich W)
Hawkins,Paul


Boyson,DrRhodes
Hawksley,Warren


Braine,SirBernard
Heddle,John


Bright,Graham
Hicks, Robert


Brinton,Tim
Higgins, RtHon Terence L.


Brittan, Rt. Hon. Leon
Hill,James


Brooke, Hon Peter
Hogg,Hon Douglas(Gr'th'm)


Brown, Michael(Brigg&amp;Sc'n)
Holland,Philip(Carlton)


Bruce-Gardyne,John
Hordern, Peter


Budgen,Nick
Howell, Ralph (NNorfolk)


Butcher,John
Hunt, David (Wirral)


Cadbury,Jocelyn
Jopling, RtHon Michael


Carlisle,John(LutonWest)
Kaberry,SirDonald


Carlisle, RtHon M.(R'c'n)
Kitson.SirTimothy


Chapman,Sydney
Knight, MrsJill


Clarke,Kenneth(Rushcliffe)
Knox, David


Cockeram,Eric
Lawrence, Ivan


Cope,John
Lawson, Rt Hon Nigel


Cranborne,Viscount
Lester, Jim (Beeston)


Crouch,David
Lewis, Kenneth (Rutland)






Lloyd, Peter (Fareham)
Roberts, Wyn (Conway)


Lyell, Nicholas
Sainsbury,HonTimothy


McCusker,H.
Shaw, Giles (Pudsey)


MacGregor,John
Shaw, Michael(Scarborough)


MacKay, John (Argyll)
Shelton,William(Streatham)


Major,John
Sims, Roger


Marland,Paul
Speed,Keith


Marlow,Antony
Speller,Tony


Mather,Carol
Spicer, Jim (WestDorset)


Maude, RtHon Sir Angus
Stainton, Keith


Mawhinney,DrBrian
Stanbrook,lvor


Maxwell-Hyslop,Robin
Stanley,John


May hew, Patrick
StradlingThomas,J.


Mellor,David
Thatcher, Rt Hon Mrs M.


Meyer,SirAnthony
Thomas, Rt Hon Peter


Miller,Hal(B'grove)
Thompson,Donald


Mills,Iain (Meriden)
Thorne,Neil(IlfordSouth)


Miscampbell,Norman
Townsend, CyrilD, (B 'heath)


Moate,Roger
van Straubenzee, Sir W.


Morris,M. (N'hamptonS)
Viggers,Peter


Mudd,David
Waddington,David


Murphy,Christopher
Wakeham,John


Needham,Richard
Waller,Gary


Nelson,Anthony
Walters,Dennis


Neubert,Michael
Watson,John


Newton,Tony
Wells,Bowen


Page, Richard (SW Herts)
Wheeler,John


Patten,John (Oxford)
Wickenden,Keith


Percival,Sirlan
Wilkinson,John


Pollock,Alexander
Winterton,Nicholas


Prentice, RtHon Reg
Wolfson,Mark


Price, SirDavid (Eastleigh)



Renton,Tim
Tellers for the Noes:


Rhodes James, Robert
Mr. Ian Lang and Mr. Tristan Garel-Jones.


Roberts,M. (CardiffNW)

Question accordingly negatived.

Amendment proposed: No 24,page 96, line 3, leave out
';but with respect to earnings'

Question put, That the amendment be made;—

The Committee divided: Ayes 22, Noes 137.

Division No. 138]
[9.20 pm


AYES


Alton,David
Mitchell, R. C. (Sotonltchen)


Brocklebank-Fowler,C.
Penhaligon, David


Brown, Ronald W. (H'ckn'yS)
Roper,John


Cartwright,John
Skinner,Dennis


Ellis,Tom (Wrexham)
Wainwright,R.(ColneV)


Fitch,Alan
Wellbeloved,James


Grant, John (IslingtonC)
Williams, RtHon Mrs (Crosby)


Horam,John
Wilson, Gordon (DundeeE)


Howells,Geraint
Wrigglesworth,Ian


Jenkins, Rt Hon Roy (Hillhead)



Lyons, Edward (Bradf'dW)
Tellers for the Ayes:


Maclennan,Robert
Mr. A. J. Beith and Mr. James A. Dunn.


Magee, Bryan





NOES


Aitken,Jonathan
Bendall,Vivian


Alexander,Richard
Benyon,Thomas (A'don)


Ancram, Michael
Berry, Hon Anthony


Arnold,Tom
Best, Keith


Aspinwall,Jack
Bevan, David Gilroy


Atkinson, David (B'm'th,E)
Biggs-Davison,SirJohn


Baker, Nicholas (NDorset)
Blackburn,John


Beaumont-Dark,Anthony
Bottomley, Peter (W'wich W)





Boyson,Dr Rhodes
Mather,Carol


Bright,Graham
Maude, Rt Hon Sir Angus


Brinton,Tim
Mawhinney,DrBrian


Brittan,Rt. Hon. Leon
Maxwell-Hyslop,Robin


Brooke, Hon Peter
Mayhew,Patrick


Brown, Michael(Brigg&amp;Sc'n,)
Mellor,David


Bruce-Gardyne,John
Meyer,SirAnthony


Budgen,Nick
Miller,Hal(B'grove)


Butcher,John
Mills, lain (Meriden)


Cadbury,Jocelyn
Miscampbell,Norman


Carlisle, John (Luton West)
Moate, Roger


Carlisle, RtHonM. (R'c'n)
Morris, M. (N'hamptonS)


Chapman,Sydney
Mudd, David


Clarke, Kenneth(Rushcliffe)
Murphy,Christopher


Cockeram,Eric
Needham,Richard


Cope,John
Nelson,Anthony


Cranborne,Viscount
Neubert,Michael


Crouch,David
Newton,Tony


Dean, Paul (NorthSomerset)
Page, Richard (SWHerts)


Dover,Denshore
Patten, John (Oxford)


Dunlop,John
Percival,Sirlan


Dunn,Roberte(Dartford)
Pollock,Alexander


Fairgrieve,SirRussell
Prentice, Rt Hon Reg


Faith, MrsSheila
Price, SirDavid (Eastleigh)


Fenner, Mrs Peggy
Renton,Tim


Fletcher-Cooke,SirCharles
Rhodes James, Robert


Garel-Jones,Tristan
Roberts, M. (Cardiff NW)


Goodhew.SirVictor
Roberts, Wyn (Conway)


Goodlad,Alastair
Sainsbury,HonTimothy


Gow, Ian
Shaw, Giles (Pudsey)


Griffiths, E.(B'ySt.Edm'ds)
Shaw, Michael (Scarborough)


Griffiths, Peter Portsm'thN)
Shelton.William(Streatham)


Hamilton, Hon A.
Sims, Roger


Hamilton,Michael(Salisbury)
Speed, Keith


Hampson,Dr Keith
Speller,Tony


Haselhurst,Alan
Spicer, Jim (WestDorset)


Hawkins,Paul
Stainton,Keith


Hawksley,Warren
Stanbrook,lvor


Heddle,John
Stanley,John


Higgins, RtHon Terence L
StradlingThomas,J.


Hill,James
Thatcher, RtHon Mrs M,


Hogg.HonDouglas(Gr'th'm)
Thomas, Rt Hon Peter


Holland,Philip(Carlton)
Thompson,Donald


Hordern, Peter
Thome, Neil(IlfordSouth)


Howell, Ralph (NNorflk)
Townsend, CyrilD(B'heath)


Hunt, David (Wirral)
van Straubenzee, SirW.


Jopling, RtHon Michael
Waddington, David


Kaberry,SirDonald
Wakeham,John


Kitson,SirTimothy
Waller, Gary


Knight,MrsJill
Walters, Dennis


Knox, David
Watson,John


Lang, Ian
Wells,Bowen


Lawrence, Ivan
Wheeler,John


Lawson, RtHonNigel
Wickenden,Keith


Lester, Jim (Beeston)
Wiggin,Jerry


Lewis, Kenneth (Rutland)
Wilkinson,John


Lloyd, Peter (Fareham)
Winterton,Nicholas


Lyell,Nicholas
Wolfson,Mark


MacGregor,John



MacKay, John (Argyll)
Tellers for the Noes:


Major,John
Robert Boscawen and Selwyn Gummer.


Marland,Paul



Marlow,Antony

Question accordingly negatived.

Clause 128 ordered to stand part of the Bill.

Bill (Clause 18, 22, 29, 65, 71, 117 and 128; and Schedule 10), reported, with amendments; to lie upon the Table.

Orders of the Day — Social Security

Mr. Brynmor John: I beg to move,
That an humble Address be presented to Her Majesty, praying that the Supplementary Benefit (Claims and Payments) Amendment Regulations 1982 (S.I., 1982, No. 522), dated 6th April 1982, a copy of which was laid before this House on 7th April, be annulled.
The prayer relates to the fuel-direct scheme which is operated when a recipient of supplementary benefit is in debt to a fuel board and, with the agreement of the board, a supplementary benefit officer is empowered to determine that part of the claimant's benefit should be paid directly to the board which, in return, agrees not to disconnect the claimant's supply.
The amount deducted from a claimant's benefit for the reduction of the debt owed to the board is equivalent to 5 per cent. of the single householder rate, rounded up to the nearest 5p. That means a maximum of £1·20 at current rates, but a higher amount can be deducted where there is a disregard.
The second part of the deduction is an estimate of the full weekly cost of a claimant's fuel consumption, except when he pays through a prepayment meter. In practice, the supplementary benefit officer accepts the estimate made by the fuel board on the basis of the claimant's past level of consumption.
Taken together, the deductions could amount to a considerable sum and could exceed 25 per cent. of the normal requirements element applicable to the person being assessed. If that happens, the person being charged must consent to such deductions. The person being charged has no right to insist upon this. It is the prerogative of the officer.
The regulations amend regulations which came into force only last November. Even in supplementary benefit terms, those regulations have had a shorter life than most without being amended. The regulations make three changes. First, and most important, they provide that the amount to be deducted to reduce the debt shall be equal not to 5 per cent. as at present, but to 10 per cent. of the single household rate. According to the press handout of the DHSS, that rate is £2·40 a week at the moment.

The Under-Secretary of State for Health and Social Security (Mr. Tony Newton): As a result of an unhappy mathematical error in rounding, that is the wrong figure; it should be £2·35. That should be put on the record.

Mr. John: I am delighted that the Under-Secretary of State has done so because the figure before me is £2·35 but as my calculations are so often wrong I hesitated to put them against the press handout of the DHSS. In future, I shall be less timid when crossing swords with the DHSS.
Where deductions are made in respect of more than one fuel—gas and electricity—they are tied to 5 per cent. of the single household rate in respect of each of them.
The second change provides for adjustment of the amount deducted in respect of current consumption if the original estimate either exceeds or falls short of the actual cost. The third change can best be described as a tidying operation. It concerns disregard of either the claimant or his partner.
I wish to deal with a number of points. I shall take them in reverse order of importance, starting with the queries and finishing with the outright opposition to the scheme.
First, what effect will the housing benefit scheme have on the new scheme? Housing benefit is being transferred from supplementary benefit and is being made a benefit in its own right. The fuel-direct arrangement can be made only where the amount of the supplementary benefit exceeds the amount to be deducted. For those claimants who are not in debt in respect of housing but are in debt in respect of fuel and paying fuel-direct, the effect of paying housing costs through housing benefit rather than through supplementary benefit may take them outside the ambit of the benefit.
I give as an example a claimant who receives £15 a week supplementary benefit, of which £10 a week is for housing costs and £8 is a fuel-direct deduction. If £10 is deducted from £15 to leave £5 net, no fuel-direct deduction can be made in that case because the amount of deduction exceeds the amount of benefit when the housing element is taken away. That element will be taken away by the Social Security and Housing Benefits Bill, which is now in the other place. What will happen in such a case? Will an alternative arrangement be made? The claimant's financial position will not have altered in any way. If the fuel board does not have the guarantee of repayment, there is a danger that disconnection will loom large in its mind. What system do the Government envisage for that circumstance?
My second point concerns the right to a fuel-direct arrangement which, at the moment, is left to the discretion of the DHSS officer. When claimants are in debt with fuel, they prefer to go on to the direct system but they have no right at the moment to insist. It is a matter for the discretion of the supplementary benefit officer.
There are a few cases, albeit only a few, in which a claimant has made a request for a fuel-direct arrangement, the fuel board has been happy to go along with that request, but the benefit officer has refused the request on the grounds that it is in the interests of the claimant to learn to budget. I accept fully that that is probably the predilection of a couple of antediluvian officers in the Department.

Mr. Andrew F. Bennett: That may be the attitude of one or two officers. There is also evidence that some officers, because of the manual system that they must use, are reluctant to increase the direct payments beyond a certain level. That has applied on the housing side in the past but it also appears to apply to fuel debts. Officers have said that they will agree to a total of £100 and no more. Will my hon. Friend press the Government to make it clear that they do not subscribe to that principle?

Mr. John: I shall press the Government to subscribe to that principle. The Government should either give a right to a fuel-direct arrangement or at the least they should give a right of appeal when there has been a refusal by a supplementary benefit officer.
There is poor liaison at some points between the fuel boards and the DHSS. The Child Poverty Action Group has provided a document called "Fuel Debts and Hardship" in which it talks about the
delays in administration at the beginning and end of 'fuel direct' arrangements.
The Department is often late in payment, as a result of which the fuel board threatens disconnection.
The Under-Secretary of State for Energy said that arrangements had been made for improved liaison with the


welfare authorities. I hope that the Minister understands that, for reasons that I shall set out in more detail later, that means better staffing at the DHSS offices than in the past.
My next point has been made by the Electricity Consumers Council and the CPAG. When low income consumers appear to incur excessively high fuel costs, there should be some arrangements whereby they are offered energy advice and possibly a home energy audit to see that their fuel expenditure is the most suitable for their needs and means and is the most economic. I hope that the Minister will comment on that.
The House has every right to take the strongest exception to the way in which the Minister once more has waived the requirement of referring the regulations to the Social Security Advisory Committee. I remind the House that under section 10(2)(a) of the Social Security Act 1980 the Secretary of State is permitted to waive the requirement for referral if it appears to him
that by reason of the urgency of the matter it is inexpedient so to refer the proposals".
That is what the Secretary of State has done on this occasion.
In a written answer on 7 April the reason given by the Under-Secretary of State was:
We are making these regulations now as a matter of urgency to assist in putting the changes into effect as soon as possible so that the new provisions may help with large fuel bills resulting from the past winter."—[Official Report, 7 April 1982; Vol. 21, c. 399.]
However, the provision for fuel direct payments already exists. The amending regulations double the rate at which the amount owing is repaid. That does nothing to help those who have accumulated large fuel bills. Therefore, I beg leave to question whether the reason given by the Secretary of State stands up to even the most modest scrutiny. Should not the SSAC have been consulted first about a step that will cause extra hardship to the claimants who have, in any event, on that level of income, to scrape to make ends meet? The urgency of the matter may have been caused by something different. The urgency may have been to get some of the fuel boards to remove the debt ceilings that they have been operating. Whether that was the quid pro quo is open to doubt.
At any rate, we must notice not only the way in which the Secretary of State has dealt with this matter as a non-emergency but the fact that he tacitly admits the total inadequacy of the emergency fuel help that was provided by the Government during the winter.
It would not be so bad, and we might take the Secretary of State's exemption of this at face value, had we not the previous week had the Child Benefit (General) Amendment Regulations about payments for school leavers, which were also laid by the Secretary of State without previous reference to the Social Security Advisory Committee. I wonder whether there is a campaign by the Government deliberately to devalue the Social Security Advisory Committee by constantly circumventing it.

Mr. Jim Craigen: The Minister is probably afraid of the kind of advice and recommendation that it would give.

Mr. John: Yes, that is implicit in what I said about the Government trying to devalue the committee. At the very

least, if what is intended to be an exceptional course becomes a matter of course, the Act itself is in danger of being devalued.
On debt ceilings, I believe that the doubling of the rate of repayment is the result of a deal done with the electricity supply industry whereby boards which currently operate a debt ceiling, limiting the size of debt for which they are prepared to accept a fuel-direct arrangement as an alternative to connection, will cease to do so. If that is so, a number of points arise.
First, the maintenance of a debt ceiling is in any event totally contrary to the spirit of the code of practice on fuel debts and disconnections agreed in 1976 between the fuel boards and the DHSS. Therefore, it should not have been necessary for the DHSS to "buy" the disappearance of that practice with a measure that will increase hardship for claimants.
Secondly, even if we accept that that was the intention, how good a bargain was achieved by doing it in this way? How many electricity boards were still imposing a fixed debt ceiling at the time when the agreement was reached? I know of only one definite example—the South of Scotland electricity board. If there are more, I hope that the Minister will tell us.
Thirdly, exactly what is the force of the fuel industries' agreement to remove the remaining limits on the size of debt for which they are prepared to consider a fuel-direct arrangement? The practice of some electricity boards has been not to impose a direct ceiling but to consider each case on its merits. In other words, it does not necessarily follow from the removal of a fixed ceiling that the fuel boards will be prepared in every case to allow a fuel-direct arrangement as an alternative to disconnection.
I press the Minister to give an assurance today that when the fuel industries say that they will remove the remaining limits they mean that in every case in which a fuel-direct arrangement is possible it will be permitted as an alternative to disconnection.
The question of two debts instead of one arises when a person consumes both gas and electricity and has a fuel-direct arrangement for one supply. The new arrangements have provided no real disincentive to running up debts as they are repayable by 5 per cent. only.
Will the Minister clarify the intention of new paragraph (2B) of the amending regulations, which provides for adjustments in the amount deducted for current consumption? No doubt the Minister has the text before him. I cannot see why this provision was necessary, as regulation 4 of the Supplementary Benefit (Determination of Claims and Questions) Regulations 1980 already provides for a review of a determination. The new paragraph therefore seems to spell out a power which already exists rather than adding any new power. If that is so, is it wise for the Government constantly to add to their printing costs by printing otiose provisions?
It is important, not that the benefit officer may review the amount deducted for current consumption, but that he should do so at regular intervals. At present, he merely has a permissive power. We would like that power to be mandatory, compelling him to review the arrangement at regular intervals.
We say that for two reasons. They are contradictory, but each is represented among the people whom we are discussing. The first case is where a fuel board overestimates a customer's current consumption. It means that an unnecessarily large amount of money will be


deducted from the benefit, and the family will have to suffer unnecessary hardship as a result. Indeed, some people suspect that some fuel boards deliberately overestimate the element for current consumption so that they can more quickly get payment of the debt, which is the first element, not the second, in the deduction. If there were a regular review, the payment could be adjusted downwards if there had been an overestimate. If the power is only permissive, the claimant may endure many months of hardship before the review is carried out. I hope that the Minister will consider the matter, and, if it is necessary, we shall not criticise him for amending the amendments fairly quickly.

Mr. Andrew F. Bennett: One problem for my constituents is that they receive a bill and are startled when they see how high it is. They find it difficult to pay, and they have to adjust the amount of gas or electricity that they will use, but the board still insists that the calculations will be based on what they have just used, not on what they will use in the next quarter, taking into account their difficulties in paying the first bill.

Mr. John: Certainly. Of course, that is estimated on past performance. I am asking for a mandatory review so that when the pattern of consumption is changed the amounts can also be adjusted and unnecessary hardship avoided.
The second phenomenon that I want to bring to the Minister's attention is the claimant who increases consumption once he is on a fuel-direct payment. The Policy Studies Institute, in its book "Fuel Debts and Hardship", gave examples of that. People are under the impression that the DHSS has taken full responsibility for the fuel bill in return for weekly deductions. Whatever the reason, it is essential that, where actual consumption exceeds the estimate, action should be taken to prevent further debt from accumulating and to avoid the adjustment which my hon. Friend the Member for Stockport, North (Mr. Bennett) has just mentioned.
Whatever the reasons why it should be done, I suspect that the power is permissive because of the problems in the DHSS in dealing with the fuel-direct system. In my view, there has been understaffing in the DHSS offices for this line of work. It has led to poor liaison with the fuel boards and a failure to take action when actual consumption is out of line with the estimate. For example, it is reported that, in some offices in north London, understaffing is so bad that at times every person working on fuel-direct work has been taken off it to attend to the general needs of the office. I hope that the Minister will assure us that, where this scheme is amended, there will be adequate staff to deal with it, and that there will be regular adjustment of deductions for current consumption.
I hope that my hon. Friends will join me in dividing the House on these regulations and thereby show our concern and opposition to the additional hardship for claimants that is involved in this measure.
It is interesting to note that the Department of Health and Social Security has given absolutely no reason for saying that in its opinion the present rate of deduction for repayment of fuel debt is too low. We know that it is tied to the cost of living and is automatically adjusted for inflation. Therefore, the House is entitled to an explanation of why the Secretary of State has decided to double the rate of deduction. The fact is—we all have to

face this—that the increased rate of repayment will place an increased strain upon the budgets of claimants who already find it extremely difficult to manage on what is by any standards a very low income. The danger is that a larger deduction in respect of fuel debt may satisfy the fuel boards but will merely transfer the indebtedness away from fuel into other fields in which the recipient of social security is equally obliged to purchase.
All of us who know something about Northern Ireland are concerned about the Payment for Debt Act and we do not want that Act or its equivalent, in whatever guise, to be transferred to the rest of Great Britain, because it has been the cause of great misery and does not serve the purposes for which it was intended.
The root cause of the problem is not how quickly the people who run into debt repay the money; the root cause is that the Government by deliberate policy have raised fuel prices in recent years by far more than the rate of inflation. I need mention only the rise in gas prices, which last year was 26 per cent. and which in each of the past three years has been 10 per cent. above the rate of inflation. I believe that this is something which on any view is misguided but which bears more harshly on low-income families than on the generality of the population.
The family expenditure survey in 1979 showed that the poorest 20 per cent. of households spend about 11½ per cent. of their income on fuel, whilst the richest 20 per cent. spend only 4 per cent. The problems of poor families are exacerbated by the fact that in many cases they cannot afford loft insulation and many other fuel-saving measures. This is compounded by the fact that mans of them live on council estates where in fits of aberration the local councils have had district agreements with the electricity board to install central heating which in many cases nobody can afford to turn on for anything like the period for which they are intended to run to warm the house. It may have been cheap for the council to install but it is a matter of great hardship to run it thereafter.
If the Government are going to pursue the policy of increasing fuel prices artificially in order to get some notional return on capital they really must provide adequate financial help for low-income families who have these fuel problems. This they have signally failed to do and this has meant that in many cases families that are neither profligate nor wasteful have got into debt when they are in receipt of social security because of this Teal and arduous problem of fuel cost. It is essential to tackle the problems of fuel policy and fuel poverty rather than to treat the symptoms of the problem through repayment.
The higher rate of repayment now to be demanded will be a significant extra sum for the family on supplementary benefit to find out of its weekly budget. I believe that it will prove a great social hardship. The Government have given absolutely no reason why it is being imposed. That is why I hope that my hon. Friends will join me in voting against the regulations.

10 pm

Mr. Reg Race: The regulations are deceptive, because, to an untutored eye, all that they apparently do is to increase the deduction for fuel debts from £1 to £2·35. However, there are other principles involved, and what matters to people who have fuel debts is the total amount of deduction from their benefit. The


Government are proposing to more or less double the amount that is taken from benefits to pay off an existing debt.
The regulations are silent about something that we must discuss, which is the way in which, in addition to that sum, there is a figure that represents so-called current consumption.
Another problem that arises from the method by which the fuel-direct scheme is operated is the way in which an individual claimant can sign away his or her rights and agree to pay more. Some of the agreements to pay more are staggering in their complexity, as are the amounts that individuals agree to pay off.
I refer the Minister to a case in my constituency, which shows that there is a major problem. It was drawn to the attention of his predecessor, the hon. Member for Wallasey (Mrs. Chalker), in 1981. We exchanged correspondence, but the subject bears repetition.
Ms Burnell Jacobs, a constituent of mine, lives in an all-electric first-floor council flat in Haringey. She ran up a bill of £861·69 with the Eastern electricity board. The board said that it would reconnect her only if a payment of £600 in cash was made to it, plus a payment per week of £21 under the fuel-direct scheme.
Ms Jacobs had two children, one of four years, and one of 15 months who had just come out of hospital with a chest infection. Her electricity supply had been disconnected by the electricity board and the local authority could not provide any form of portable gas heating because it was on the first floor and was regarded as a fire risk. The social services department gave her two gas lights and a single gas burner camping stove. Application was then made to the DHSS local office for a single payment to clear some of the outstanding electricity debt to get her back on to supply. Initially, this was turned down on the ground that
She had alternative forms of heating and lighting.
That was the two gas lights and the single gas burner camping stove provided by the social services department.
The decison was made not by the local office but by the regional office of the DHSS and was appealed against. The Under-Secretary wrote to me on 12 May 1981 about the case, and eventually an appeal tribunal awarded a single payment of £647. With the agreement of my constituent a fuel-direct deduction of £24·10 a week was made from her supplementary benefit to pay for her current consumption and her existing outstanding debt after the single payment had been made.
Of the payment of £24·10 a week that Ms Jacobs had to sign away from her benefit, £23 was for current electricity consumption. When that was investigated by the excellent Tottenham advice bureau, run by the local authority, it was found that the annual consumption rate that that £23 represented was no less than 100 per cent. over the previous two years' consumption. An outrageous amount was being demanded by the electricity board through the local office, and it was agreed to by the claimant because that was the only way that she could get back on supply.
That case outlines some of the worst problems of the fuel-direct scheme. Nevertheless, I applaud the scheme. It is basically a good scheme, but it should be improved drastically, and our job tonight is to see that it is.

Mr. Peter Bottomley: Because this is a non-partisan issue—or some elements of it are—can the hon. Member for Wood Green (Mr. Race) say whether what he has reported appears to be a general approach by the board? Is the implication of his figures that this person had not paid for fuel for over a year?

Mr. Race: The woman had been paying money to the electricity board. She had run up a debt over a period of time. However, her consumption over the previous 12 months was not excessive for her flat. It was high, but not abnormally so. At that time, what I have said appeared to be the general approach of that electricity board.
We must ask ourselves who is in charge of the fuel-direct scheme on the ground. Is it the local office? I asked the local office that dealt with the case. I have good relations with it, and I think that it does a good job. It did not see itself as being in charge of the fuel-direct scheme. It said that it merely implemented the electricity board's demands. Therefore, I went to see the regional manager of the Eastern electricity board. He is an excellent man and deals well with complaints that I raise with him. He told me that it was not the job of the Eastern electricity board to act as a social service. If there were a problem, he said, the Department of Health and Social Security had to make representations about it.
The difficulty facing claimants under the fuel-direct scheme seems to be that the electricity board may make excessive demands in order to recoup its outstanding amounts from individuals as rapidly as possible, the local office of the DHSS does not see it as being within its powers to make representations to reduce the claims from the board, and the claimants, who may have been disconnected and who want to get back on to supply as quickly as possible, will agree to almost anything to have that supply restored, particularly if they have children or an aged relative in the house.
The House must build into the system a method of overseeing those deductions from benefit to ensure that they are not excessive and to ensure that the total deduction is not excessive.
My hon. Friend the Member for Pontypridd (Mr. John) correctly said that the burden of debt is simply shifted on to somebody else—the rent, the rates or the hire purchase is not paid. We all know that that is true. Therefore, my plea to the Minister tonight is, first, that he should withdraw the regulations, because they increase hardship. The near doubling of deductions for debt payments matters to people who are on a low rate of benefit.
Secondly, for heaven's sake let us have a real look at the fuel-direct scheme to ensure that the policies that I have outlined in this case, which were reflected in others in my locality, do not occur again.
We must have a fuel-direct system which is fair, which can be appealed against, and which reflects the real needs of claimants. If we do that, claimants will have good cause to say that the House of Commons has done a good job and to thank it for that. If the Minister is not prepared to make that kind of investigation, perhaps it should be done by the Social Security Advisory Committee. Here is a classic area in which the SSAC should look at the administration of fuel-direct payments. It can do that if it wishes to do so. Perhaps the Minister ought to encourage it to do so. If we can get some urgency and some action, claimants will get a better deal, and that is what we all want.

Mr. Peter Bottomley: Two or three points ought to be made in the debate in the hope that people outside will pay attention to what we say.
I do not disapprove of the regulations. I think that it is reasonable for the weekly amount to go up to 10 per cent. It is important to remember the people who are not covered. When hon. Members talk about the transfer of debts from fuel to some other area, I am reminded of the people who have to rely on paraffin or coal for their heating. There is not the opportunity to build up debts with the coal merchant, because payment has to be made in cash in advance of delivery. That is different from gas and electricity consumption, where the problem arises in having to meet quarterly accounts. There are other occasions when problems arise because of prepayment meters being broken into, either by the family concerned or by people from outside. We are talking about specific fuels, electricity and gas, and almost without exception the problems are concentrated on those two fuels.
I find it worrying that so many families find themselves with over a year's fuel debts before getting help to settle those debts. I should like to think that our fuel boards have the initiative to contact families or to take action which brings matters to a head within, say, a period of a quarter and a half. Families should not be allowed to accumulate debts covering periods exceeding six months.
When people are allowed, as in the example that has been given, to run up debts of over £800, and when the current consumption is about £10 a week, it would appear that about 15 months' debts have accumulated. That is letting a family—especially one on supplementary benefit—get into far more difficulties than it can reasonably be expected to get out of.
I recognise that the fuel boards have difficulties and that many hon. Members take a rather strong line, as I do, over fuel disconnections. They have to try to find the appropriate commercial way, through the two pressures that are being applied. That is their job. They should not expect to get paid and get a round of applause as well.
Whenever I have had to take up fuel problems with the fuel boards or with the Department of Health and Social Security, there has been a good response. One recognises that there may be variations from locality to locality or as between different members of staff. It may be a question of the other pressures on the office at the time, but, even in the most difficult cases, I have found the authorities reasonable, and usually it has been possible to come to some kind of arrangement.
I am concerned about the liaison between the fuel boards and the DHSS office. On occasions I have found that when people have tried to go on to a fuel-direct system, the buck seems to have been passed from the electricity board to the DHSS and vice versa. That often arises when a family has been on the fuel-direct system for two years, has come off it, has not managed to organise its own budgeting, and has then found it difficult to go back on to the fuel-direct system.
I recognise how difficult it is to have arrangements which discourage people from relying unnecessarily on the fuel-direct system. If that happens, the DHSS office becomes rather like a bank running standing orders or regular payments for people on supplementary benefit. It would be preferable to have the system that is operated in Germany and France, where almost every family has a

bank or giro account so that there can be automatic payments on the day that the supplementary benefit arrives. That has the same effect as the fuel-direct scheme, but it does not require too much work by the DHSS office. We are obviously a long way from that, because nearly 40 per cent. of British families do not have savings accounts either with the National Girobank or with another bank. We must try to move towards a scheme where families can make their own fuel-direct payments, as long as they make sure that the money leaves their account on the same day that the bill comes in.
We should have more privatisation—I hate the word—in analysing what is happening in this area. We should not always rely upon the Social Security Advisory Committee. We should take a leaf out of the example that was set by the Family Fund, where an independent charity was asked to administer the fund on behalf of the Government. If we wanted an analysis of the position on the ground without relying entirely on the DHSS, we could ask the Child Poverty Action Group to conduct a survey. At the moment it obtains evidence on a limited basis, but it should have Government funding to monitor the effects of changes in such regulations and to check how widespread are the examples given by the hon. Member for Pontypridd (Mr. John). We shall find that there are cheaper ways of conducting surveys which will help both the Government and hon. Members to monitor the effects of regulations.

Mr. John: The hon. Member for Woolwich, West (Mr. Bottomley) will recognise that, under section 10, the statutory obligation laid on the Minister to refer such regulations to the Social Security Advisory Committee can be avoided only in certain cases. Does he agree that it is an unhealthy development that the Minister should certify that the latest two cases have a priority which does not match up to the realities of the position? For example, is there anything in the regulation that is so helpful to the beneficiary that it should be laid before the House before the advice of the advisory committee has been obtained?

Mr. Bottomley: I do not agree at the moment, but I look forward to my hon. Friend's speech. The point that I was trying to make—which was not the one made adequately by the hon. Gentleman—was that we should use outside experts to monitor the changing effects of regulations on fuel prices. I hope that the Government will consider using outside bodies—not necessarily commercial bodies, although I have no political objection to that—to find out what is going on. Many outside bodies have the sort of expertise that is not only useful in briefing Members of Parliament and the Government, but can be used for following up the effects of the regulations.
A useful point was made about energy advice. I wish that that advice had been available to many local authorities which carried out the wrong form of building, let alone the wrong form of heating. It is acceptable to install electric heating in a house or in a low-level block of flats because it is possible to switch to an alternative form of heating, but in the local authority buildings in my constituency it is impossible to install alternative heating.
I wish to re-emphasise and appeal for early action to help not only the families concerned but those in contact with them, such as the supplementary benefit offices, the fuel boards and the local community networks. The more that they are aware that early action is important and that


fuel debts can be kept down by voluntary action by the families and useful intervention—not busybodying—by those who can give them formal or informal advice, the more we can reduce this sort of problem.
The payment of fuel bills is a major problem and will continue to be so. We must ameliorate it as much as possible and take every opportunity to make the lives of those on supplementary benefit with high fuel bills as easy as possible. We should remember that those on supplementary benefit do not have large disposable resources, which is why it is important to ensure that fuel payments are not added to their debts. We must ensure that the level of the fuel-direct scheme is kept as low as possible by trying to reduce the level of debts.

Mr. Andrew F. Bennett: I support my hon. Friends in their Prayer to have these regulations annulled. They are called
The Supplementary Benefit (Claims and Payments) Amendment Regulations 1982.
That does not tell us much about them. It would have been much better had the Minister arranged for a note to be stuck on the top saying "Stand and deliver, pay up quick regulations." That is what they are about.
The Minister should also look at the back page which gives the price of 75p for a copy of the regulations. I do not expect many claimants to buy a copy, but many welfare rights and other groups will buy an up-to-date set, particularly as the regulations amend earlier regulations that are only six months old. The Government should look at the way in which the price of regulations is imposed on bodies that do not have much in the way of resources to pay for them. This may not be a problem with the general run of regulations which go to public bodies and to solicitors who can afford to pay for them, but a lot of the work in this area is done by organisations that work on a shoestring and to put a price of 75p on these regulations is unfair.
The real problem of fuel debts was brought about by the gas and electricity boards. I am appalled at the amount of time spent trying to solve a problem that the boards created themselves. Thirty or 40 years ago, when people on the whole had lower incomes, very few got into difficulties meeting their fuel bills. That was because a larger proportion paid for their fuel before it was consumed. They used oil, paraffin or coal and bought it as they went along.
In those days, gas or electricity was in most cases paid for through a prepayment meter. It was the enthusiasm with which the gas and electricity boards ripped out prepayment meters that created the problem. The boards did that for two reasons. They wanted to cut down their collection costs and they were worried about the number of meter robberies. I accept that those problems existed, but this enthusiasm for ripping out the meters was the real cause of the present problem. If the boards had retained the meters and converted them to take tokens that could be destroyed as they were inserted in the meter, most of the problems would have been solved and we would not need to spend so much time on this issue.

Mr. Race: Is my hon. Friend aware of the recent happy change in policy by some electricity boards? They are

bringing back prepayment meters, particularly in households where there has been a history of fuel debt. Does not this show that our pleas for a more rational approach are having some success?

Mr. Bennett: Yes. I am willing to pay tribute to some of the boards, certainly in the North-West, that I know have started installing prepayment meters. However, the simple action for the Government is to tell the boards that they have no sympathy for their problems of collecting money until the boards install prepayment meters to the same extent as they did in the 1960s. Only when the boards have played their part by doing that can the Government bring forward these regulations.
I do not believe that the gas or electricity boards have done enough work on the development of destructive tokens and making such tokens available so that they can be purchased at local corner shops and a wide variety of places. If that was done they would solve many of their problems.
The Government are allowing the boards to continue making life difficult for those on low incomes, particularly by allowing them to push forward with standing charges. A section of the regulations should stipulate that people on supplementary benefit should have their standing charges met direct—not from existing benefit but from extra benefit. I can see no justification for the standing charge anyway, but it is extremely harsh for someone on a low income such as supplementary benefit. Quite often, such people make savings, cut back and do without necessary fuel but still find that they are being penalised by the standing charge.
I have constituents who have incurred heavy winter bills because it was necessary and who for the two summer quarters have tried to make do with virtually no heating at all. Even so, they find that a substantial standing charge will be applied by the gas or electricity boards. The Government ought to be doing something about that. If they cannot stop the boards from imposing a standing charge, they ought to provide some money.
It is deplorable that the Government did not put this matter to the Social Security Advisory Committee before they introduced the regulations. It seems that the Government are reluctant to take notice of the advisory committee. The committee made 14 recommendations to the Government in its first annual report, and it looks as though the Government might implement four or five. They have not taken a great deal of notice.
In the new Social Security and Housing Benefits Bill the Government propose a special price index for housing. We now know it as the "Rossi index". They will take that into account in future because they believe that housing costs work differently from general costs in the RPI.
Why do not the Government introduce a special index for fuel costs—perhaps the "Newton index"? Taking into account the standing charge and the extra that the fuel board have had to impose as a result of Government policy, fuel charges in the last two years have gone up catastrophically for most individuals. I therefore believe that the Government ought to consider such a special index.

Mr. John: My hon. Friend will remember that we pressed the Government not necessarily for a separate fuel index but for an index covering the lowest 25 per cent. economically so that fuel that accounts for a much higher


percentage of a poor family's income should be adequately weighted in the RPI rather than struck as an average as at present.

Mr. Bennett: I accept that. The Government ought to introduce this index and give extra money in the supplementary benefit.
In a way, these regulations are almost that sort of index. The Government are really saying "We recognise that, as part of your needs, fuel has doubled from 5 per cent. to 10 per cent. Because of that, we shall allow the boards to recover the money that much sooner". In a sense they are admitting that this is an extra cost in the needs of someone on supplementary benefit. In fact, they ought to increase the benefit to take that into account. It is, therefore, important for the Government to come forward with a positive policy and to put some extra money in people's pockets before finding quicker ways of taking it out of their pockets.
The Government have been warned several times that the Social Security Housing Benefits Bill will reduce flexibility for many claimants. They will not receive their rent money. It will be paid direct. Therefore, the choice of being a week or a fortnight in arrears with one's rent will be removed from many individuals.
When it first talked about that change, the Supplementary Benefits Commission recognised that it would mean a loss of flexibility. It said that it was worth it so long as some extra money was provided. The loss of flexibility to borrow from the housing department means that in order to ensure that their children have clothes to attend school or food to eat, more people will be tempted to dip into the money that should be set aside to pay their fuel bills. As a result of Government policy, and the Social Security and Housing Benefits Bill, the problem of fuel debts will increase. Therefore, the Government must carefully consider the ways in which—within the next 12 months—they can raise the general level of benefit to take into account the loss of flexibility.
Like my hon. Friends on the Front Bench, I believe that people should have the right to insist on fuel-direct and that that should not be left to the discretion of individual offices. I hope that the Minister will make it clear that he does not accept the principle found in some offices that an extra case will not be put on the list for fuel-direct until a case has been taken off it. Such a practice is most unfortunate.
Many of my constituents manage to obtain, in effect, a fuel audit. When the electricity and gas boards are contacted, they will often send someone to advise on what can be done to reduce a high bill. Often I could give that advice. Indeed, a social worker could often give the necessary advice. Often, the individual concerned can work it out. However, because people are caught by the low income from supplementary benefit, they have not got the small capital necessary to improve the situation. They have not got the money for an insulation scheme, and the local authority sometimes will not install one. They sometimes find that they cannot change the heating system because they have not got the capital to buy the appliance necessary for more efficient heating. Often, council tenants cannot move from a high-fuel-cost dwelling to a low-fuel-cost dwelling. The Government should pay more attention to that problem.
The Government should make it possible for people to obtain more capital so that they can change the heating

system or install insulation or they should make it easier for them to move out of expensively heated accommodation within a local authority area into cheaper accommodation.

Mr. Race: Is not the crux of the matter that it is often not the claimant's fault that he has run up high fuel bills, but that of the construction or design of the dwelling? Presumably such accommodation was designed when energy prices were lower and those responsible did not consider an individual's ability to pay high fuel bills.

Mr. Bennett: I agree with my hon. Friend. Tenants often live in blocks of flats built in the late 1960s when it was thought that fuel would be cheap. Such tenants are committed to living in a block of flats when they would prefer to live in a semi-detached house with a garden. They are also committed to a high-cost heating system—often an electric under-floor heating system—and would like to get away into a semi-detached council house with an old-fashioned fireplace. They would prefer to burn coal and know that if they were to run short, there would be much more chance of scrounging something else to burn.
Under this Government, the chances of being able to move from a block of flats into the older type of council houses has been reduced. Instead of encouraging people to move from those older council estates and to buy houses elsewhere, big discounts have encouraged people to buy houses on a council estate. That means that those in the blocks of flats are stuck with accommodation that they do not like and a heating system that they do not like and cannot afford.
We need to make it possible for people to have a fuel audit on their home and if they are advised to move or to change their heating appliances the Government must make that possible and not condemn those people to live in accommodation that they do not like and face bills that they cannot afford. The regulations say "Pay up or else". I beg the Government to take them away and come back with a realistic and helpful policy for those in need.

Mr. Jim Craigen: Like my right hon. and hon. Friends, I hope that the regulations will be turfed out. They do nothing to help those on supplementary benefit; they merely speed up and increase the rate at which fuel boards are paid outstanding debts.
I shall tease the hon. Member for Woolwich, West (Mr. Bottomley). It seemed to me that he suggested that if we all had bank accounts the problem would be solved, because everyone could pay for gas and electricity through standing orders. The hon. Gentleman also referred to the need for outside experts, but the Child Poverty Action Group was worried recently that its funding would be in jeopardy. That is a strange contrast with the hon. Gentleman's call for more outside experts.
Gas and electricity prices have risen considerably during the Government's lifetime, and they are penalising not only those on supplementary benefits, but those on low incomes who have to meet the increased costs.
I accept what the hon. Member for Woolwich, West said about the management procedures of the fuel boards. Some of my colleagues and I raised that matter when we met officials of the South of Scotland electricity board last year. The system for keeping a close watch on the buildup of debts does not always work, and my experience of


local DHSS offices convinces me that problems are caused not by a lack of will but by pressures that distract staff from their work on the fuel-direct scheme, especially when a crisis crops up in the office.
I suggested to the SSEB last year that it needed to improve its liaison system with the DHSS local offices. I hope that there have been improvements, because early warning systems are desirable for the fuel boards' accounting procedures and for those on supplementary benefits.
There is a staffing priority that must be borne in mind. I thought about intervening when my hon. Friend the Member for Pontypridd (Mr. John) referred to the need for adequate staffing. The Government are reducing the DHSS staffing complement. Things are moving in the wrong direction.
I understand that home energy advisers are thin on the ground, because the fuel boards do not employ many staff on that work. Such advisers need the judgment of Solomon, because they are dealing with systems that are often inoperable because people cannot afford to run them. Under-floor heating systems in some multi-storey blocks of flats have long been switched off because they are far too expensive. In many modern properties, as well as older houses, the major problem is dampness and the cost of keeping such houses properly heated is considerable.
The regulations do nothing to improve the position of those on supplementary benefit or of meeting the problem of the low paid. The Government must address themselves to minimising, if not reducing, energy costs and increasing the financial support to those on supplementary benefit.

The Under-Secretary of State for Health and Social Security (Mr. Tony Newton): I am aware that this is an important subject. If any further evidence were needed, the past winter would have brought that home not only to the poorly off, about whom we are talking, but even to those of us who are relatively well off who have had a shock when the winter fuel bills arrived. That makes one even more conscious of the problems which have been the subject of the debate. For that reason, if for no other, I welcome the opportunity that the Prayer and the regulations that we have proposed have given us to debate these matters.
The Government are open minded on the subject and genuinely seek ways to bring about further improvements. I am grateful for the constructive suggestions that have come from both sides of the House.
The intention behind the regulations is to bring about a genuine improvement in the arrangements for assisting people on low incomes to cope with the difficult problems that arise when fuel debts are run up. In saying that, I wish to emphasise a point that has been implicit in the debate but has not been brought out as fully as I would have liked. The regulations, which are not just an isolated piece of bright DHSS thinking—an idea on its own—need to be seen in the context of the significant package announced by my hon. Friend the Under-Secretary of State for Energy on 29 March following long discussions with other organisations, including the fuel boards, and arising from the report "Fuel Debts and Hardship."
I should like to quote from my hon. Friend's statement in Hansard the details of the changes that were being proposed. He said:
"Arrangements for repayment of debt—the industries will now take the initiative"—
this fits in with a point made by my hon. Friend the Member for Woolwich, West (Mr. Bottomley)—
and offer a repayment arrangement before disconnection. Determined efforts will be made to contact consumers and increase take up of repayment arrangements.
Large accumulated debts—arrangements for repayment over a reasonable period will be offered.
Prepayment meters"—
this point was raised by the hon. Member for Stockport, North (Mr. Bennett)—
prepayment meters will be installed on request, where safe and practical. All requests will now be recorded; there will be no arbitrary refusals. The industries will investigate technical alternatives to traditional slot meters.
Whatever may be said about the past—many hon. Members on both sides of the House would have reservations about the extent to which policy for a long time moved away from slot meters—that represents a significant move back in the direction which the hon. Gentleman wanted.
"'Fuel-direct' scheme—the industries have removed all limits on the size of debt accepted for this scheme (except for one board which is about to do so).

Mr. Andrew F. Bennett: Is the Minister quoting from Hansard or is he giving the current position?

Mr. Newton: I am quoting from Hansard. The board in question was the South of Scotland electricity board. That matter has now been resolved. From the inspirational nods I see around me, I am persuaded that I have the correct position on that matter.
I return to the quotation:
"Welfare authorities—improvements to the 'fuel-direct' scheme have been agreed with DHSS. Subject to Parliamentary approval these should be introduced shortly. Arrangements have been made for improved liaison with the welfare authorities."—[Official Report, 29 March 1982; Vol. 20, c. 25.]
There is a final section which deals with disconnection of tenants for landlords' debts which may also help but which I shall not quote.
It is in that context that our proposal needs to be seen. Taken as a whole, not least in the light of the comments that hon. Members have made in calling for some of those steps, I can legitimately claim that, looked at as a whole, it represents a significant step in the right direction.
The regulations are the DHSS's contribution to a wider package. The hon. Member for Pontypridd wondered whether the background was a deal with the electricity boards. When politicians talk about deals, somehow an aura of disapproval is cast over the situation. The electricity and gas boards have certain duties to their consumers at large. The DHSS has clear responsibilities for the interests of less well off people. The word "deal", which I would not want to dispute, shows that we have been party to negotiations and agreements that have produced a more sensible and satisfactory situation for the interests involved.

Mr. John: Do I understand the Minister to be assenting to my central proposition that, in order to budge the obduracy of the South of Scotland electricity board, regulations that double the amount that may be deducted from benefit for supplementary benefit beneficiaries have been brought before the House?

Mr. Newton: I am not accepting any such tendentious language. I am saying that there has been a process of negotiation and discussion with the fuel boards, which has achieved a sensible and useful package in the interests of consumers at large and of relatively poor consumers.
I should also like to comment on what the hon. Gentleman said about the Social Security Advisory Committee. I have been spending a good deal of time in the last few days looking at one or two other changes that we hope to make to supplementary benefit regulations—not in this context, but in others—against a background of some pressure, because we wish to make sure that the SSAC has the fullest opportunity to consider them. I ask the hon. Gentleman to accept that what has happened in this case, and also in the child benefit case, on which the hon. Gentleman touched, does not in any sense reflect our desire to bypass or undermine the work of the SSAC. On the contrary, we attach great importance to it. We shall look forward to having the SSAC's report on the regulations.
We used the urgent procedure because, against the background of the last winter, the high bills that arose because of it and the SSAC's wish to see the limit on debt ceilings accepted for fuel-direct systems removed, we felt that it was important to get the package as a whole, including the removal of debt ceilings, into force before this winter's fuel bills started to arrive. I put that in the context of what I have said about negotiation and discussion rather than a disreputable deal.
That is the reason for the urgency. Otherwise, there would have been a serious risk of continuing the fuel debt ceilings in circumstances that would have led to more disconnections than we or anyone would wish as this winter's fuel bills began to arrive. That is sensible and right.

Mr. John: I want to confirm one fact. Is it right that only the South of Scotland electricity board was operating the fuel-direct ceiling at the time and that the other boards, since the November regulations and the 5 per cent. limit, have not been operating those ceilings?

Mr. Newton: I was coming to the hon. Gentleman's point. I understand that London also had a limit and that other boards had levels that were used as guides to the grade of officer in the fuel boards who considered the cases. However, the result of having that guide was that sometimes it was used as a limit instead as being used as an indication that the case should be referred to the next grade of officer. Therefore, partly for practical reasons and, in the case of some boards, partly for other reasons, the effect of the limit on the debt ceilings accepted for the fuel-direct scheme was still quite substantial.
The abolition of the limits will be embodied clearly in the joint statement of intent agreed between the fuel boards and the DHSS.
The Government attached great importance, genuinely and in no sense as an attempt to dodge the SSAC, to bringing the proposals into effect before the winter's fuel bills arrived.
As the hon. Member for Pontypridd accurately pointed out, there are two elements in the regulations. First, there is the increase in the amount that can be deducted for a single fuel debt from 5 per cent. to 10 per cent. It has not emerged as clearly as I had hoped in the debate that the 10 per cent maximum already applies to cases in which

two fuel debts arise, because 5 per cent. can be deducted for each debt. The only change, therefore, is that in future it will be possible for the 10 per cent. maximum to be applied to cases in which there is only one debt instead of only where there are two.
The other changes are relatively limited. I do not wish to underestimate their significance, but it is also possible to overdramatise them. In this context, I emphasise the safeguards that are contained in the regulations.
First, there is no question of this change applying to existing fuel-direct cases, by which I mean those which existed when this provision came into effect on 28 April. For them the position remains the same. The deduction for an existing debt cannot suddenly be raised from 5 per cent. to 10 per cent. Secondly, it is implicit in what I have just said that the maximum deduction for debt remains at 10 per cent. Finally, taking account both of the deduction for debt and of the deductions related to current consumption, to which the hon. Gentleman referred, the maximum total deduction for both purposes remains at 25 per cent. of the claimant's basic benefit unless he agrees to more. It is important to recognise that the principal safeguards on the total amounts that could be taken remain clearly in place under the proposed regulations.

Mr. Race: We appreciate some of the actions that the Minister is taking, but why does he not remove the provision that more than 25 per cent. can be deducted if the claimant agrees? Surely that is a means of selling something to get back money for fuel, which should not be allowed.

Mr. Newton: The hon. Gentleman raised this matter in the context of a particular case on which he apparently corresponded with my predecessor but which I have not had the chance to study. Therefore, I do not feel that it would be sensible to comment on that case. When I return to the Department, which is more likely to be tommorrow than tonight, I shall ask for the correspondence so that the general point arising from it may be examined again. I understand the hon. Gentleman's concern about this matter.
I shall try to deal briefly with the points raised by Opposition Members about housing benefit. It is certainly true that if a person is on supplementary benefit only by virtue of housing costs, the introduction of housing benefit will take that person off supplementary benefit and the question of the fuel-direct scheme will not then arise. Similarly, in the not quite so clear-cut situation that the hon. Member for Pontypridd described, problems could occur. All I can say at this stage is that I note what the hon. Gentleman has said. It will, of course, be necessary to bring in further regulations in relation to the housing benefit scheme in due course, and the House will have the opportunity to consider those regulations when they are introduced.
Many of the points that were raised in the debate—I hope that I shall be forgiven if I do not comment on them individually—related to liaison between local officers and the fuel boards, implicitly to liaison between local officers and welfare rights groups, staffing problems in local offices, administrative delays, and so on. In answer, may I say that part of our purpose in all this, including the changes in the arrangements for deductions in respect of current consumption, is to help to improve the administrative arrangements and the flexibility with which


we deal with claimants' cases. I do not say that what we are doing tonight will produce an immediate dramatic improvement. I simply ask right hon. and hon. Members to accept that we are determined to do what we can to improve the situation. We see these regulations as part of the effort to do that, and, in particular, to improve the flexibility with which adjustments are made to cope with the kind of difficulties that several hon. Members have mentioned.
As always, when one presents a limited measure of this kind, which no one pretends is or is intended to be a complete solution to the wider problems which have emerged from speeches, there is a risk that one will convey a sense of complacency. We are in no way complacent about the problem of fuel costs, fuel debts, and the difficulties created for people by the rises in fuel prices. I recognise and, to a significant extent, share some of the anxieties which have been expressed. We shall continue to look for ways in which to help further where we can. Many hon. Members have mentioned the need for review, monitoring and keeping in touch with outside bodies. We shall be very concerned to do that. Indeed, I am having a meeting with some of the main national bodies later this month, when we shall discuss some of these matters.
Ministers in the DHSS have to bear in mind three matters. First, against the background of the general rise in energy costs, there must be a limit to the extent to which any Government can protect any section of the community from some adverse effects. The whole community is suffering from the rise in energy prices, and it would be foolish of me to pretend that it was possible to protect any part of the community completely from those effects, much as we might wish to do that.
Secondly, there is always the question of judging priorities. To extend the generous heating help that we give through additions to many people now on supplementary benefit, amounting from next November to over £300 million a year, to those on rent and rate rebates, for example, would cost another £300 million. That is the amount, if it were available, that one has to weigh against other claims within the sphere of social security, let alone other spheres. We cannot overlook that in our anxiety to help.
Finally, we must be convinced that what we propose is consistent with the general desire to bring about an economy which inflates less fast and produces more national income from which everything else has to come.

Mr. John: I have listened to the Minister's moving remarks about not being able to help, but the Government forced the British Gas Corporation and the other fuel boards to raise prices by more than the level of inflation. Do they not recognise that they have a duty to protect the poorest in those circumstances?

Mr. Newton: The Government's recognition of the problem is reflected—this is the only figure that I shall use in the rest of my speech—in the increased help with heating additions and fuel schemes generally from £116 million in 1979–80 to more than £300 million in 1982–83. The heating additions have been increased in real terms, not just kept pace with inflation, under the improvements introduced by the Government.
We shall carefully monitor what we are proposing tonight in co-operation with the boards and with other

bodies representing claimants, and if we are convinced that there are ways in which we should make further changes to improve things still further, we shall be ready to do so.
I see this as an admittedly modest but undoubtedly useful measure in an attempt to help people trying to cope with the problem of fuel debts. I invite the House to support us. I hope that the Opposition will not, in the context in which I have put these measures tonight, press their Prayer to a vote.

Question put:—

The House divided: Ayes 41, Noes 109.

Division No. 139]
[11.00 pm


AYES


Archer, Rt Hon Peter
Hoyle,Douglas


Berth, A. J.
John,Brynmor


Bennett,Andrew(St'kp'tn)
Leighton, Ronald


Booth, Rt Hon Albert
Lewis,Kenneth(Rutland)


Callaghan,Jim(Midd't'n&amp;P)
Lyons, Edward (Bradf'dW)


Campbell-Savours,Dale
McCartney,Hugh


Clark, Dr David (S Shields)
McDonald,DrOonagh


Cocks, Rt Hon M.(B'stolS)
Morris, Rt Hon C. (O'shaw)


Craigen, J. M. (G'gow, M'hill)
Morton,George


Cryer.Bob
Powell,Raymond(Ogmore)


Dalyell,Tam
Prescott,John


Davis,Terry (B'ham, Stechf'd)
Race,Reg


Dean,Joseph (Leeds West)
Skinner,Dennis


Dormand,Jack
Snape,Peter


Dubs,Alfred
Walker,Rt Hon H.(D'caster)


Eastham,Ken
Whitlock,William


Evans,Ioan (Aberdare)
Winnick,David


Hamilton, W.W. (C'tralFife)
Young,David (Bolton E)


Harrison,RtHonWalter



Haynes,Frank
Tellers for the Ayes:


HomeRobertson,John
Mr. Allen McKay and Mr. Lawrence Cunliffe.


Homewood,William



Howells,Geraint




 NOES


Alexander,Richard
Griffiths,PeterPortsm'thN)


Ancram,Michael
Gummer,JohnSelwyn


Aspinwall,Jack
Hamilton,HonA.


Atkinson,David(B'm'th,E)
Hamilton,Michael(Salisbury)


Baker,Nicholas (NDorset)
Hampson,DrKeith


Beaumont-Dark,Anthony
Haselhurst,Alan


Bendall,Vivian
Hawkins,Paul


Benyon,Thomas (A'don)
Hawksley,Warren


Berry,HonAnthony
Heddle,John


Best,Keith
Hogg,HonDouglas(Gr'th'm)


Bevan,David Gilroy
Holland,Philip(Carlton)


Biggs-Davison,SirJohn
Hordern,Peter


Blackburn,John
Hurd,RtHonDouglas


Bottomley,Peter (W'wichW)
Jopling,RtHonMichael


Boyson,DrRhodes
Kitson,SirTimothy


Braine,SirBernard
Knight,MrsJill


Bright,Graham
Knox,David


Brinton,Tim
Lang,Ian


Brooke,Hon Peter
Lester,Jim (Beeston)


Bruce-Gardyne,John
Lloyd,Peter (Fareham)


Buck,Antony
Lyell,Nicholas


Budgen,Nick
MacGregor,John


Cadbury,Jocelyn
MacKay,John (Argyll)


Carlisle,RtHon M. (R'c'n)
Major,John


Chapman,Sydney
Marland,Paul


Clarke,Kenneth (Rushcliffe)
Marlow,Antony


Cockeram,Eric
Mather,Carol


Cope,John
Maude,RtHon Sir Angus


Cranborne,Viscount
Mawhinney,DrBrian


Dover,Denshore
Maxwell-Hyslop,Robin


Dykes,Hugh
Mayhew,Patrick


Fairgrieve,SirRussell
Mellor,David


Faith, MrsSheila
Meyer, SirAnthony


Fenner,MrsPeggy
Miller,Hal(B'grove)


Fletcher-Cooke,SirCharles
Mills,Iain(Meriden)


Garel-Jones,Tristan
Moate,Roger


Goodlad,Alastair
Morris, M. (N'hamptonS)


Gow,Ian
Mudd,David






Murphy,Christopher
Shaw,Michael(Scarborough)?


Nelson,Anthony
Shelton,William(Streatham)


Newton,Tony
Speed,Keith


Page,Richard (SWHerts)
Speller,Tony


Price,SirDavid (Eastleigh)
Stanbrook,Ivor


Renton,Tim
Stanley,John


Rhodes James, Robert
Stevens,Martin


Roberts, M. (Cardiff NW)
Stradling Thomas.J.


Roberts, Wyn (Conway)
Thatcher, Rt Hon Mrs M.


Sainsbury.HonTimothy
Thomas,RtHonPeter


Shaw,Giles (Pudsey)
Thompson,Donald




Thorne,Neil (IlfordSouth)
Wilkinson,John


Townsend, Cyril D,(B'heath)
Williams,D.(Montgomery)


Waddington,David
Wolfson,Mark


Waller,Gary



Watson,John
Tellers for the Noes:


Wells, Bowen
Mr. Robert Boscawen and Mr. David Hunt.


Wheeler,John



Wickenden,Keith

Question accordingly negatived.

Orders of the Day — Development Board for Rural Wales

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lang.]

Mr. Tom Hooson: These are deeply worrying times for the people of Mid-Wales. We have fears that the Development Board for Rural Wales is about to be undermined in its widely admired efforts to strengthen the economy and society of the most rural parts of Wales. We fear that the total loss of assisted area status for most of the area will occur from 1 August.
Although a delegation of the Powys county and district councils, Members of Parliament and the DBRW is shortly to be received by the two Secretaries of State concerned, those for Wales and for Industry, the fact that Welsh Office officials are already refusing to meet the DBRW in connection with any industrial projects not initiated prior to 30 April raises the suspicion, which my hon. Friend the Member for Montgomery (Mr. Williams) and I share, that an unfavourable decision has all but been made.
It is most disconcerting to see such evidence of the Welsh Office jumping the gun. I hope that when my hon. Friend the Under-Secretary of State for Wales replies he will undertake to seek the reversal of that administrative decision. Execution before trial comes better from Lewis Carroll's Red Queen than from my right hon. Friend the Secretary of State for Wales.
I have been reading and listening to my right hon. Friend's comments about Mid-Wales with mounting alarm. He has been sedating us for a total loss of regional aid. I want to fasten on to a fallacy that he keeps repeating. I first saw it in a report in the Western Mail on 30 September 1981. He was quoted as saying that the Government would be looking at development area status for Mid-Wales but could do this only in relation to similar policies in neighbouring English counties. He said that in making their review the Government would have to see whether there were any specific measures suited to attracting business into this area.
My right hon. Friend's fallacy is that the review of regional aid should be wholly based on percentage unemployment statistics. Nothing but the will of the two Secretaries of State concerned with the review of the Welsh area requires any such mechanical approach. The correct terms of reference are as quoted in a letter to me dated 12 February 1981 from my hon. Friend the Member for Cardiff, North-West (Mr. Roberts). He said that the review would embrace
all the circumstances, actual and expected, including the state of employment and unemployment, population changes, migration and the objectives of regional policies.
That is not a formula that absolves the Secretary of State for Wales, who obviously has primary responsibility for protecting the peculiar interests of Wales in dealing with ministerial colleagues, from responsibility for decisions about areas in Wales. In that connection he has very considerable duties towards Mid-Wales.
Gaul was divided into three parts. So is Wales, and a Secretary of State for Wales who failed to minister to the need of the most sparsely populated part of Wales could not sustain his authority as Secretary of State—certainly not with the people of Mid-Wales.
Having established ministerial responsibility, I come to the special characteristics of Mid-Wales. Mid-Wales is by

all normal measures a freak area. No one is better aware of how impossible it is to apply normal statistical measures to it than my right hon. Friend when he allocates the rate support grant, particularly to Powys. The freakishness arises directly from the exceptional sparsity of population, which creates many burdens in maintaining a viable society.
Each of the three districts in Powys has an average population of 0·2 persons per hectare—only one-third the level in Gwynedd and Dyfed. The five districts in the area of the Development Board for Rural Wales were deliberately chosen because they stand out as suffering from problems of inadequate population. No English county comes close to these problems—certainly none that is near to Offa's Dyke. The most sparsely populated county in England, Northumberland, has 0·6 persons per hectare.
There is a fashionable American word at the moment—even-handedness. Let us hear no more about even-handed appraisals of Welsh and English areas when we are light years from comparing like with like across the border.
It is precisely because of the peculiar and potentially grave problems of Mid-Wales that special regional bodies, culminating in the DBRW, were established. It is no accident that only one comparable rural area has been recognised by the establishment of a special social and economic agency—the Highlands and Islands Development Board. Most of the Highlands area is due to retain development area status under existing plans, while most of Mid-Wales will lose it. Is there one law for the Scots and another for the Welsh? If there is, what will the Welsh Secretary of State do about it? The factors that justify the special status of the HIDB area are precisely the same as those of Mid-Wales, but so far the Scottish claims have been argued more effectively within the Government.
I want to make another Scottish comparison, since the Government seem determined to make numbers their magical touchstone on this issue. Percentage unemployment is now worse in Mid-Wales than in the Highlands and Islands Development Board area, and the gap is steadily worsening.
In 1979, when the proposed changes in assisted area status were announced, Mid-Wales had lower unemployment statistics than the Highlands—7·1 per cent. versus 9 per cent. By now, not least because the prospective loss of investment incentives has gravely weakened the DBRW's appeal for new employers, the two areas have reversed positions. In 1981 the DBRW area had 12·1 per cent. unemployment, while the Highlands and Islands area had 11·6 per cent. By March 1982 the DBRW stood at 12·9 per cent., against the Highlands' 12 per cent.
There is strong evidence that the DBRW has already been damaged. In his report for 1980–81 the able chairman of the DBRW, Mr. Leslie Morgan, quoted his predecessor's report of the previous year as saying:
It will not be easy to maintain momentum at the spanking rate of the first three years. The slow-down of the economy, high interest rates and the impending loss of regional aid over much of Mid-Wales make the task formidable.
Mr. Morgan commented:
So it has proved to be".
He pointed out that the
DBRW's responsibilities in reversing a century of decline cannot be accomplished quickly. Obviously, withdrawal of aid after only a limited recovery would be a blow.


Occupancy rates for DBRW factories show the increasing problems that Mr. Morgan and his colleagues are facing. The board now has 168,000 sq ft of empty space in 18 factories in Powys alone, and has not yet let the 200,000 sq ft vacated by BRD in the constituency of my hon. Friend the Member for Montgomery. Closures and impending closures will leave unoccupied over 200,000 sq ft of the factory floor space built in Powys by the board. The need to provide investment incentives simply to utilise the existing investment in bricks and mortar and to sustain some promising trends must be clear from the statistics.
I have time to cite only some of the points that we wish to develop with Ministers, but I wish to end by trying to be helpful to my right hon. Friend. We need assisted area status not only for all the reasons that I have given or implied but because without it we shall lose our claim to European funds, although not necessarily for section 4 tourism. However, if such a blinkered statistical approach by the Government is inevitable, surely the alternative is to promise us an amendment to the legal powers of the DBRW to enable it to make loans and grants, as the HIDB is allowed to do in Scotland. We in Mid-Wales expect my right hon. Friend the Secretary of State for Wales to serve Mid-Wales just as well as the Secretary of State for Scotland serves his nation.

The Under-Secretary of State for Wales (Mr. Wyn Roberts): My hon. Friend the Member for Brecon and Radnor (Mr. Hooson) has made it abundantly clear why he sought this debate on the Development Board for Rural Wales tonight. He has spoken with some candour, but I know that in this he is motivated only by concern for the welfare of his constituents and of the people of Wales living within the area covered by the development board. I welcome the opportunity to make some comments on his speech and I hope that what I say will put matters into perspective and will serve, to some extent at any rate, to reassure him.
First, I must say that the important issue of assisted area status must be examined in a much wider context. There is a real risk of regarding the granting of any particular level of assisted area status as an instant solution to the problems of an area. It simply is not so. Industrial development in Mid-Wales—as any other area—can only come when national economic circumstances are right and our policies are designed to bring that about.
There is also the need for confidence from investors who see in an area the right sort of environment, potential work force and encouraging local policies which makes places such as Mid-Wales a good place in which to live and work. In this context the activities of the Development Board for Rural Wales are, and will continue to be, very important.
The board can look back on a period of considerable achievement. In 1977 it inherited 104 factories, of which only 32 are vacant. Those factories are already providing 4,750 jobs. In addition, there are 59 factories and six extensions under construction or approved for building. When completed and occupied, board factories will provide opportunities for about 6,600 jobs in Mid-Wales.
The board has an impressive record of factory letting. Before 1977 factories were let at the rate of five a year.

Since then the rate has been about one a week. So far in 1982, factories have been allocated at around 10 a month, almost all to new or expanding ventures.
The board has told my right hon. Friend that it wishes to maintain its basic policy, but to extend and diversify its employment-creating activities, with participation by the private sector. He has broadly endorsed this strategy, which requires collaboration with other bodies, and will be important in developing the Mid-Wales economy. Indeed, I am happy to take this opportunity to announce that my right hon. Friend has given approval to the board to commission a major study costing £50,000 of the economic potential for the development of Aberystwyth harbour and its environs. This is a study that is supported by the local authorities and the Wales Tourist Board.
I fully understand the concern and anxiety in Mid-Wales about assisted area status. My right hon. Friend the Secretary of State has received representations from both the Development Board for Rural Wales and Powys county council on this matter. Indeed, my right lion. Friend met Powys county council last summer. It made it clear to him at that time its deep anxiety.
As my hon. Friend said, my right hon. Friend is to meet the county council very shortly, together with my right hon. Friend the Secretary of State for Industry. My hon. Friend and other hon. Members may well be present. I am sure that they will take the chance to put these points to him again with even more vigour. So I can assure my hon. Friend that when we reach the point where decisions are taken the arguments for Mid-Wales will be known and appreciated by everyone concerned.
But perhaps I can remind my hon. Friend of the background to this whole question. As he will know, following the 1979 review of the assisted areas the Government's policy is now to concentrate regional aids on those areas facing unemployment on a large scale with severe problems of structural decline.
We did, however, appreciate that in some cases, where changes would be drastic, a time for adjustment was needed. Hence, we decided that where areas were to be double-downgraded—Mid-Wales was one of these—the downgrading should take place in two steps; the first from August 1980 and the second in August 1982. We also decided to have a special review of the areas due to be double-downgraded before the final step was taken.
Let me say at once to my hon. Friend that this review is now in progress and that no decisions have yet been taken. My hon. Friend the Minister of State, Department of Industry has told the House that the results will be available later in the spring. That is still the position—no decisions have yet been taken.
My hon. Friend raised the question of administrative action in regard to the submission and processing of applications for selective financial assistance. It needs to be appreciated that under the provisions of the Industry Act 1972 offers of assistance cannot be made in an area which has ceased to have intermediate or higher status. It will be clear that this immediately poses problems in terms of the handling of applications in the weeks and months leading up to the date when an area may lose its assisted status.
In principle, it is open to the Department to accept applications up until the very last day; indeed, in the letter which was sent to more than 120 firms in rural Wales more than a year ago we said that we would continue to accept applications right up to 1 August, the date on which subject to the review now in hand—I stress that—the areas


concerned will become non-assisted. In the same letter, however, we called attention to the time taken to process applications and said it would
be most advisable for any such applications to be sent to the Welsh Office no later than 31 March 1982".
We sent this letter, as I say, more than a year ago to 120 firms employing 11 or more employees in the areas of Wales which might lose their intermediate status on 1 August 1982. A copy of this letter was sent to the Development Board for Rural Wales. In the light of this, I really cannot believe that anyone directly involved can have been in doubt about the vital importance of submitting applications for selective financial assistance well before the cut-off date. The three Departments administering selective financial assistance were anxious to avoid difficulties and embarrassments which would result from the continued acceptance of applications right up to the cut-off date—applications which could not possibly be processed properly in time for offers of assistance to be made before 1 August. It was therefore decided to announce a firm date by which applications would have to be submitted. That date was 30 April, a whole month later than the date by which companies had been urged last year to put in their applications.
This prudent administrative action in no way pre-empts the final decision. It is without prejudice to that decision. I really cannot accept that the Development Board for Rural Wales has had the ground cut from under its feet by this Government action or that there has been what my hon. Friend called "jumping the gun".
Of course there is a relevance with regard to status in connection with tourism. My hon. Friend rightly referred to the importance of tourism in Mid-Wales. That is an unquestionable fact. The tourist board will continue to promote, and give advice on, the development of tourism facilities throughout Wales. However, I recognise the concern that has been expressed in many quarters that if assisted area status is lost, the tourist board's ability to give financial assistance for individual tourism projects under section 4 of the Development of Tourism Act 1969 will also disappear from Mid-Wales.
My right hon. Friend has noted the representations which have been made as to the considerable importance of this assistance to rural areas generally and Mid-Wales in particular, and this will be very carefully considered by the Government in the context of the review.
My hon. Friend also referred to the link between assisted area status and aid from the European regional development fund. It is quite true that if areas do become "white"—that is, no longer assisted—they will no longer be eligible for ERDF receipts. Again, this is one of the matters which will be taken into account in the course of the Review, but its importance should not be exaggerated. To put that matter in perspective, I should say that while figures are not available for the area of the DBRW itself, the take up of ERDF aid within the county of Powys since 1975 has been slightly less than £2 million.

Mr. Delwyn Williams: I am grateful to my hon. Friend for giving way. Is he aware of the British Tourist Authority's annual report for 1980, which says inter alia that it will concentrate tourist grants on development areas? If that is correct, and if Mid-Wales loses its development status, it will be positively discriminated against by the tourist bodies.

Mr. Roberts: I have told my hon. Friend that the future of grants under section 4 is under consideration by the Government. It is a matter for my right hon. Friends the Secretary of State for Wales and the Secretary of State for Trade.
The debate has been very much in the context of Mid-Wales as a whole. I can understand why that is so, but I think it is important to keep in mind that we are talking about a very wide and varied area and that within it there is considerable diversity and a wide variety of problems. For example, there are 10 travel-to-work areas in Mid-Wales, which, if the proposals for downgrading are implemented, would lose assisted area status. The rate of unemployment in these currently—these are the April figures—varies from 6·4 per cent. in Carmarthen and 8·8 per cent. in Brecon up to over 14 per cent. in Newtown, Welshpool or Llandeilo.
I recognise the special problems in Newtown. The development of Newtown is an important element of our strategy for Mid-Wales and I accept that the numbers and rate of those unemployed are too high. Indeed, unemployment in Newtown has risen by 48 per cent. over the past 12 months as compared with 16 per cent. in the DBRW area as a whole. There is no doubt that the 400 redundancies at BRD Newtown last summer were a significant factor in this, and the situation will not be made any easier by the 150 notified redundancies due to occur later this year at Dowty Seals. I know that my right hon. Friend the Secretary of State will take note of these worrying problems.
Provision for the DBRW has been maintained at its previously planned level of cash provision and has risen from £7·5 million in 1980–81 to about £9 million in 1982–83 in line with the inflation factors set by Her Majesty's Government. This is a considerable achievement at a time of stringent public expenditure constraints. The level of provision for 1983–84 has yet to be decided, but we shall wish to take account of the Board's record and plans and also the effect of any change in assisted area status.
Another feature of the board's approach to its tasks to which I should like to draw attention is the imaginative and thrusting promotional activities which it undertakes with such valuable results. I know that the board feels that these campaigns have contributed greatly to its success in letting factories.
A good example was the board's rail-borne travelling exhibition—the "Mid-Wales Experience"—which provided a showcase for over 150 Mid-Wales companies, as well as for educational and tourism attractions. In the course of 18 days, the exhibition train visited 10 English locations and was visited by over 25,000 people. A very large number of business and tourist inquiries were received—some thousands—and there have been 132 firm industrial inquiries so far. I believe that these results speak for themselves and contradict the somewhat pessimistic view taken of the board's future and that of Mid-Wales by my hon. Friend.
It is not only the economic sphere upon which the board makes an impact. Social measures, such as its programme of grants, are sustaining and improving the fabric of life and culture throughout the board's area, from the smallest village to the largest town.
Possibly the best way to perceive the board's overall effect on Mid-Wales is to look at population trends. The traditional picture of rural Wales has been of an area


suffering from depopulation, an area from which the young people have departed, leaving an increasing proportion of people over working age. Indeed, when the board was established it was envisaged that one of its major tasks would be to attempt to combat all the problems associated with such a scenario.
This picture is no longer true. The 1981 census results showed that over the past decade there was an overall population growth in the board's area of about 8 per cent., highlighted by the growth in Newtown. This is much higher than in the industrial areas of Wales and is exceeded in England by only one region. Furthermore, while the rest of Britain has experienced a growth in the proportion of the population over working age, the proportion has not increased in the board's area. Indeed, the working age population of the board's area has increased by more than in the rest of Wales and Great Britain. I believe that the board has contributed in no small way to these trends.
I have been speaking only of board activities which have the effect of directly and visibly creating

employment. Of course it should not be forgotten that the board has a unique and varied range of powers, functions and activities which it has used to remarkably good effect, albeit in less visible ways. To take only two examples, although there are many more, the board's business advisory service has been instrumental in the creation of well over 300 jobs. Secondly, the board's recently established home and small factory based garments knitting industry in south Ceredigion should in 'time provide the equivalent of 300 further full-time jobs.
It is demonstrable therefore that the board is successful in providing jobs in Mid Wales, and substantially I hope that I have reassured my hon. Friend to some extent that the final decision has not yet been taken on assisted area status—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty minutes to Twelve o'clock.